IMF head warns of slow growth and economic “shocks” in 2016

Barry Grey

International Monetary Fund Managing Director Christine Lagarde offered a bleak economic forecast for 2016 and beyond in a guest column published Wednesday in the German financial newspaper Handelsblatt .

The IMF head wrote that global economic growth next year would be “disappointing” and the outlook for the medium term had also deteriorated. Lagarde pointed to the continuing slowdown in China and the prospect of rising interest rates in the US as major factors leading to a continued slowdown in world growth rates and the potential for financial shocks.

Lagarde also noted the substantial decline in the growth of world trade, the ongoing fall in oil and other commodity prices, and the worsening economic and financial crisis in so-called “emerging market” and “developing” countries whose economies are heavily dependent on commodity exports and expanding trade.

“All of that means global growth will be disappointing and uneven in 2016,” Lagarde said. She warned, in particular, of “spillover effects” resulting from the decision of the US Federal Reserve Board earlier this month to begin raising its benchmark interest rate from near zero, the first Fed rate increase in over nine years.

Lagarde and the IMF had lobbied against the Fed move, warning that it could spark a panic outflow of capital from emerging market countries with high levels of dollar-denominated corporate debt such as Brazil, Turkey and South Africa.

In the Handelsblatt article, Lagarde said that she was concerned about the ability of such countries to absorb “shocks,” citing in particular an increase in financing costs for corporations that sold large volumes of dollar-denominated bonds during the emerging market and oil boom that followed the financial crisis of 2008. The rise in the dollar means the real cost of debt repayment for these companies, whose revenues are in sinking local currencies, increases.

Lagarde hinted that the crisis could spread more broadly across the financial system, suggesting that emerging market and energy sector companies defaulting on their payments could “infect” banks and state treasuries.

On Wednesday, oil prices resumed their slide to their lowest levels in eleven years after the Saudi oil minister said the kingdom had no intention of scaling back petroleum production in 2016. Since the middle of 2014, oil prices have plummeted by two-thirds. In 2015 alone they have dropped by 35 percent.

But the oil price fall is only part of a broader collapse in industrial commodity prices. Nickel has dropped by more than 40 percent. Zinc, which was widely expected to rise in price this year because of the signaled closure of large mines in Australia and Ireland, has fallen 28 percent. Iron ore has also plummeted.

The new drop in oil prices and Lagarde’s pessimistic forecast combined to push down global stock prices Wednesday, with the Dow Jones Industrial Average falling 117 points (0.66 percent), in line with other major indexes in the US and Europe.

The continuing decline in commodity prices is a sharp expression of a deepening crisis in the real economy internationally. The slowdown in China is the most prominent factor in the fall in these prices, as its previously voracious appetite for industrial commodities propped up global demand.

But China’s slowdown is itself an expression of more fundamental processes and contradictions in the world capitalist economy. An indication of the systemic nature of the current malaise is the forecast released this week by OPEC that petroleum prices will not return to the $100-per-barrel levels of 2013 and early 2014 until 2040 at the earliest.

In October, the IMF released a report predicting world economic growth of 3.5 percent for 2016, the slowest rate since the immediate aftermath of the September 2008 financial meltdown. Last April, it warned that the global economy would remain locked in a pattern of slow growth, high unemployment and high debt for a prolonged period, acknowledging that there was little prospect of a return to the growth rates that prevailed prior to the 2008 crash.

In the April report, the IMF focused on a sharp decline in business investment during the so-called “recovery” that officially began in June of 2009. It noted that business investment in North America and Europe had declined by 20 percent, twice the fall that followed previous recessions.

While the IMF chose not to make the connection, this figure points to a basic feature of the global capitalist crisis—the enormous growth of speculation and parasitism. The same tendencies that triggered the 2008 crash—the reckless and largely criminal speculative activities of the financial elite that have come to dominate economic life—have only intensified in the aftermath of the financial crisis.

Far from reining in the banks and hedge funds, the IMF, the major central banks and governments in the US, Europe and Japan have bailed them out to the tune of trillions of dollars and subsidized a further orgy of speculation. By means of ultra-low interest rates and central bank money-printing operations, known as “quantitative easing,” finance capital has been encouraged to inflate new financial bubbles—from the stock market to the oil sector, junk bonds and emerging market economies—which have further enriched the wealthy and the super-wealthy while diverting resources from the productive forces and impoverishing the working class.

While the real economy has remained depressed, stock prices have soared. The Standard & Poor’s 500 index in the US has risen by more than 200 percent since 2009.

Corporations and banks have starved the real economy of productive investment, instead seeking higher profits from risky investments that are entirely parasitic. These include speculation in high-yield, high-risk “junk bonds” linked to the oil and commodities industries. After the implosion of the subprime mortgage market in 2007-2008, money has flooded into this area of speculation. High-yield assets at US mutual funds hit $305 billion in June 2014, triple their level in 2009. Outstanding debt in the US junk bond market has soared to more than $1.2 trillion from less than $700 billion in 2007—an increase of 71 percent.

Now, under the impact of the collapse in industrial commodity prices, the ratings agencies are warning that 50 percent of energy junk bonds could default, along with 72 percent of bonds in the metals, mining and steel industries.

The mounting crisis of the emerging market economies is similarly bound up with massive inflows of hot money seeking high rates of return during the oil boom and China’s post-Wall Street crisis rapid economic expansion. Between 2004 and 2014, emerging market corporate debt increased from $4 trillion to $18 trillion, with much of the increase taking place since 2008.

One figure highlights the further growth of economic parasitism since the 2008 crisis: global debt has increased by 40 percent to $200 trillion, almost three times the size of the world economy.

To pay for this exercise in recklessness and greed, the working class all over the world has been hammered with austerity programs, mass layoffs and cuts in wages, pensions and health benefits. This has only deepened the stagnation and decline in the real economy. But these attacks will continue and intensify in 2016 and beyond, in tandem with the deepening of the crisis of the capitalist system.

Perhaps the sharpest expression of the explosive growth of parasitism is the record increase registered in 2015 in mergers and acquisitions and stock buybacks. US corporations that amassed trillions from cost cutting, wage cuts and the benevolence of the Obama administration and the Fed, rather than invest their cash hoards in job-creating, productive areas, have instead plowed it into stock buybacks to increase the payouts to big investors, and in mergers, which result in downsizing and job cutting. This past year, $4.7 trillion worth of mergers and acquisitions were announced in the US, a record.

One day prior to Lagarde’s column in Handelsblatt, the initial fruits of one of the biggest mergers of the year, the $130 billion deal involving the chemical giants DuPont and Dow, were announced. DuPont said Tuesday it would cut 1,700 jobs in its home area around Wilmington, Delaware. This is part of a $700 million cost-cutting plan that will reduce the firm’s 6,100-strong work force by 10 percent.

On the threshold of the New Year

Joseph Kishore

As the year 2015 ends, a general mood of fear and foreboding predominates in ruling circles. It is hard to find a trace of optimism. Commentators in the bourgeois media look back on the past year and recognize that it has been a year of deepening crisis. They look forward to 2016 with apprehension. The general sense in government offices and corporate boardrooms is that the coming year will be one of deep shocks, with unexpected consequences.

The Financial Times’ Gideon Rachman gives expression to this pervasive feeling in his end-of-the-year assessment published on Tuesday. “In 2015, a sense of unease and foreboding seemed to settle on all the world’s power centers,” he writes. “All the big players seem uncertain—even fearful.” China “feels much less stable.” In Europe, the mood is “bleak.” In the US, public sentiment is “sour.”

Significantly, Rachman singles out as the “biggest common factor” in the world situation “a bubbling anti-elite sentiment, combining anxiety about inequality and rage about corruption that is visible in countries as different as France, Brazil, China and the US.” This observation reflects a growing recognition within the corporate media that the coming period will be one of immense social upheavals.

Rachman’s comment and others like it that have appeared in recent days confirm the assessment made by the World Socialist Web Site during the first week of 2015. The intervals between the eruption of major geopolitical, economic and social crises have “become so short that they can hardly be described as intervals,” we wrote. Crises “appear not as isolated ‘episodes,’ but as more or less permanent features of contemporary reality. The pattern of perpetual crisis that characterized 2014—an essential indicator of the advanced state of global capitalist disequilibrium—will continue with even greater intensity in 2015.”

In defending its rule, the ruling class seeks to cover over the reality of capitalism beneath a mass of lies and hypocrisy. War is cloaked in the language of freedom and democracy; antisocial domestic policy is portrayed as the pursuit of equality and freedom. But—and this is characteristic of a period of crisis—more and more, the essential nature of capitalism—a system of exploitation, inequality, war and repression—comes into alignment with the everyday experiences of broad masses of people. Illusions are dispelled; the essence appears.

In the sphere of world economy, any expectation of an upturn has given way to the reality of permanent crisis. In the United States, six years into the so-called economic “recovery,” real unemployment remains at near-record highs, wages are under attack, and health care and pensions for millions of Americans are being wiped out. Europe is growing at less than 2 percent a year, and large parts of the European economy—including Greece, the target of brutal austerity measures demanded by the European banks—are in deep recession. China, presented as a possible engine of world economic growth, is slowing sharply. Brazil and much of Latin America are in deep slump. Russia is in recession.

Meanwhile, the easy-money policy of the world’s central banks has produced a new wave of speculative investment, centered in junk bonds and other forms of debt, which is beginning to unravel in a process that parallels the crisis in subprime mortgages prior to 2008.

The essential and intended consequence of government policy over the past seven years has been to vastly increase social inequality. During the past year, the wealth of the world’s billionaires surged past $7 trillion and the top 1 percent now controls half of the world’s wealth. In the US, the scale of social inequality—and therefore political inequality—is so great that one recent scientific study concluded that “the preferences of the vast majority of Americans appear to have essentially no impact on which policies the government does or doesn’t adopt.”

The economic crisis intersects with and intensifies geopolitical conflicts, which in 2015 brought the globe closer to world war than at any time in the past half-century. Virtually every part of the world has either become a battlefield or is assuming the character of a potential battlefield. The Middle East has been propelled into a regional civil war stoked by the imperialist powers, with Syria now the target of an intensified war drive waged under the guise of a new “war on terror.” Eastern Europe is being remilitarized as part of the US and NATO’s campaign against Russia. In East Asia, the US is staging provocations against China over the South China Sea. In Africa, US and European forces are planning operations in Libya, Cameroon, Nigeria and other countries.

Imperialism operates with a level of ruthlessness and criminality that can be compared only to the period of the first half of the 20th century. Entire countries are being torn apart. Atrocities—like the deliberate bombing of a Doctors Without Borders hospital in Afghanistan in October—are carried out with no consequences. Wars are launched without even the pretense of international legality.

Great power conflict—which produced two devastating wars in the 20th century—is again emerging as the basic dynamic of global relations. The relentless war drive of American imperialism is bringing it into conflict not only with Russia and China, but increasingly with other imperialist powers. The past year has seen a major effort by Germany to reassert itself as the principal European power, with calls from politicians, media commentators and academics for the establishment of a “strong state” to enable Germany to fill the role of “taskmaster” of Europe. Once again, the German ruling class is developing plans to “control Europe in order to control the world.”

For masses of people, the essential character of the state as a “body of armed men” dedicated to the defense of class rule is becoming evident. The “war on terror”—intensified following the attacks in Paris and San Bernardino toward the end of the year—is used to justify the abrogation of the formal procedures of bourgeois democracy. France has been placed under a permanent “state of emergency.” The European powers, in response to a massive refugee crisis produced by the military devastation of the Middle East, are erecting barriers and expelling migrants. Under conditions of unending war, fascistic and neo-fascistic forces (the National Front in France, Pegida in Germany, the candidacy of Donald Trump in the US) are growing.

The American ruling class, which employs torture and drone assassination in pursuit of its global ambitions, has built up a colossal apparatus of repression at home. Every day brings new reports of unarmed workers and youth being gunned down in cold blood by police officers who operate, with impunity, as self-appointed executioners.

As in every period of intense crisis, the real class interests represented by different tendencies are exposed. This goes not only for the established bourgeois parties, but also for the “left” parties of the petty bourgeoisie. The central strategic experience for the working class in 2015 was the election in Greece of Syriza, the “Coalition of the Radical Left,” whose coming to power in January was presented as a major turning point in world politics. Over the course of the year, however, Syriza betrayed every one of its election promises and is now implementing the very policies it claimed to oppose. As the year came to a close, elections in Spain showed a significant growth in support for Syriza’s ally, Podemos, with new claims that the era of austerity is over.

In fact, as the experience in Greece demonstrated, parties like Podemos, Syriza and many others internationally are thoroughly hostile to the working class. Politically and theoretically, they are rooted in the anti-Marxist conceptions of postmodernism, obsessed with race, sex and gender. The past year has not only exposed the political bankruptcy of the pseudo-left, but contributed to a growing realization that what has been called “left” is, in fact, only one expression of the general rightward movement of bourgeois politics as a whole.

What these experiences prove is that there is no alternative except the revolutionary mobilization of the working class in opposition to the capitalist system.

Against this background, the final and most decisive expression of the capitalist crisis is the intensification of class struggle and the growing signs of the emergence of the working class as an independent force. There is deep and profound anger and opposition that is continually erupting in different forms—strikes, protests, demonstrations—which the ruling class seeks to isolate and suppress through a combination of violence and the mobilization of its auxiliary agencies in the pseudo-left and the trade unions.

In the final months of the past year, opposition among US autoworkers brought them into conflict with both the auto companies and the corporatist United Auto Workers union. The efforts of American workers, paralleled in countries throughout the world, to break through the barriers erected by the reactionary unions are entering a new stage. This process, though in its initial stages, will become increasingly pronounced. The period in which the class struggle has been artificially suppressed, in which opposition to war, inequality and dictatorship has been excluded from political life, is coming to an end.

The past year was not lived in vain. Workers all over the world are beginning to draw the lessons, to acquire a greater consciousness of the social and political forces they confront. In this regard, it is significant that the struggle of autoworkers corresponded to a sharp growth in the readership of the World Socialist Web Site, as thousands of workers turned to the WSWS as a source of truth and perspective. This can and will be repeated on an ever-larger scale in countless forms in the coming period.

Political problems are posed with enormous sharpness. That capitalism confronts an existential crisis is now self-evident. The question raised is: How will this crisis be resolved? Which will develop more rapidly, the tendency toward world war and dictatorship or the tendency toward socialist revolution? That is the great question that is posed as the New Year begins.

Developing Partnerships With The Poor

Moin Qazi

The perception that the poor do not have skills or would not be able to survive on their own is a myth. My experience with development finance has demonstrated that we have to encourage strategies that ensure wider participation of poor in schemes aimed at ameliorating their problems. It is the unleashing of such social energies and, not hackneyed government programmes and tiring lip service of politicians, which will make India’s development ambition a reality. All that the pro-villages rhetoric does is to pay lip service to the people who still live there without electricity and running water. All that you have to do is to provide them access to capital and opportunity and see them take off.

During all these years of my association with the rural sector, I have come to know that development is fuller when put in women’s hands, especially the poor, who know best how to use the little money they have. The first generation leaders of Independent India believed that economic justice would be advanced by the lessons of cooperation where common efforts to achieve the common good will subsume all artificial differences of caste, community and religion. Increasingly, these dreams have been dashed against the shoals of politics, bureaucracy and disregard for the fundamental principle of cooperation. They are all part of a virus sweeping the country, a malaise called dishonesty. Much of what the leaders promise is empty rhetoric and much of the harvest that false promises could reap was owing to the gullible public who saw quicksilver in mirages.

Although there is so much discussion in public forums of involving the stakeholders for appropriate development of the society in which the poor live , poor people rarely get the opportunity to develop their own agenda and vision or set terms for the involvement of outsiders. The entire participatory paradigm illustrates that people are participating in plans and programs that we – outsiders – have designed. Not only is there little opportunity for them to articulate their ideas, there is also seldom an institutional space where their ingenuity and creativity in solving their own problems can be recognized, respected and rewarded

Today the most important need for a development worker posted in a rural area is the need to listen. The best advice one could ever give to new entrants in the field of rural development is to listen to what the people want instead of trying to assume to know what the problems and solutions are. Economic development and social change cannot be imposed from without. They must be sought and grasped by the individual pursuing opportunities for self-realization. That well-meaning people should have the open mindedness to listen to those who work in the field and live the day-to-day challenges. That respect opens many doors. Lasting change comes about so slowly that you may not even notice it until one day people and Individuals don’t want to be taken care of – they need to be given a chance to fulfill their own potential .If we can inspire people around the world to think differently about what it means to be poor, then we will have made a real impact. When we design solutions that recognize the poor as clients or customers and not as passive recipients of charity, we have a real chance to end poverty. And I believe we can do that in our generation. This logic comes from the importance of empathy—not one that comes from a place of superiority, but one born from a profound humility.

Rather than just facilitating and providing the mental and physical space for the poor to develop themselves, the drivers of the project make the poor puppets, not equal partners. The early 1980s taught me that the village did not need to plan its growth on the model designed by the urban intelligentsia alone. In fact, urban India needed to learn from villages as much or more than it needed to give. There was need for a genuine dialogue between two equals. Gandhiji's rural bias became clearer. The idea or principle underlying it was fully acceptable, even if the details were not.

If the primary focus is really ending poverty, we must establish partnership between poor communities so that they learn from one another and share traditional, practical knowledge and skills. Importing expensive, unworkable ideas, equipment and consultants simply destroys the capacity of communities to help themselves. That model encourages colossal falsification of figures, the excessive hiring of private consultants and contractors, conflicts of interest and a massive patronage system.

To fresh entrants in this field of development work, I can only suggest that it is important living in a village rather than dropping by for the day, if one really wants to get full insight. I think the main reason why many of our programmes have gone awry is because development workers particularly the senior bosses never had the patience to understand the problems and needs of villagers. During their official visits, they move through villages as if they are passing through revolving doors, rarely interested in dropping into a villager’s house, afraid of catching infection if they are made to taste the villager’s hospitality . Remarks like, ‘ I am a farmer myself’, ‘ you can’t pull wool over my eyes’ and ‘I was born and brought up in a village’ ‘ I know rural problems better than anybody else’ are a sign of arrogance and will not go down well with the people with whom you want to work.

It is only through long and close contact with the poor themselves and through our work with them that we are able to gain a deeper understanding and a more balanced view. In this way our experience is not that of a typical non-governmental organization (NGO) many of which work from within the confines of the project enclave or are based in urban centres from where excursions are made out into the villages by jeep. Such brief or sporadic encounters are unlikely to give any great insights into the lives of the poorest. Sadly, many NGOs are far removed from the realities of poverty and often fail to reach those most in need. For me the most surprising thing has been the simple human-to-human connection that has let me overcome both language and culture barriers.

We should not forget that poor villagers are not just statistics but people like you and me, and apart from the poverty that they share in common, there is as much variety of humankind among them as anywhere else in the world: the hardworking, the lazy, the shy, the outspoken, the honest, the devious, the intelligent and the dull, the improvident and the enterprising. Amongst the people with whom we worked, whether Muslim, Hindu or Dalit, were all of these, though, in my experience, the positive characteristics almost always stood out.

Villagers may be uneducated, but they are extremely clever and very good at telling an outsider what they think they want to hear. The truth of a village can come out only slowly, with time — time for trust to build between the villagers and outsiders, and time for the outsider to peel away all the layers to get at the truth.

In his reflections on fieldwork the doyen of Indian anthropologists, Professor M.N. Shrinivas, has talked of successful ethnography as having to pass through three stages. An anthropologist is ‘once-born’ when he initially goes to the fields, thrust from familiar surroundings into a world he has very little clue about. He is ‘twice –born’ when, on living for some time among his tribe, he is able to see things from their viewpoint. To those anthropologists ,fortunate’ enough to experience it ,this second birth is akin to a Buddhist urge of consciousness ,for which years of study or mere linguistic facility do not prepare you. All of a sudden, one is about to see everything from the native’s point of view –be it festivals, fertility rites or the fear of death.

Culture, Education And Human Solidarity

John Avery

Cultural and educational activities have a small ecological footprint, and therefore are more sustainable than pollution-producing, fossil-fuel-using jobs in industry. Furthermore, since culture and knowledge are shared among all nations, work in culture and education leads societies naturally towards internationalism and peace.

Economies based on a high level of consumption of material goods are unsustainable and will have to be abandoned by a future world that renounces the use of fossil fuels in order to avoid catastrophic climate change, a world where non-renewable resources such as metals will become increasingly rare and expensive. How then can full employment be maintained?

The creation of renewable energy infrastructure will provide work for a large number of people; but in addition, sustainable economies of the future will need to shift many workers from jobs in industry to jobs in the service sector. Within the service sector, jobs in culture and education are particularly valuable because the will help to avoid the disastrous wars that are currently producing enormous human suffering and millions of refugees, wars that threaten to escalate into an all-destroying global thermonuclear war.

http://www.fredsakademiet.dk/library/need.pdf

http://eruditio.worldacademy.org/issue-5/article/urgent-need-renewable-energy

Human nature may contain primitive tribal emotional elements which make it easy for demagogues to lead their populations into war; but humans also have a unique aptitude for cooperation. Our success as a species is due to the sharing and preservation of cultural achievements.

Human nature has two sides: It has a dark side, to which nationalism and militarism appeal; but our species also has a genius for cooperation, which we can see in the growth of culture. Our modern civilization has been built up by means of a worldwide exchange of ideas and inventions. It is built on the achievements of many ancient cultures. China, Japan, India, Mesopotamia, Egypt, Greece, the Islamic world, Christian Europe, and the Jewish intellectual traditions all have contributed. Potatoes, corn, squash, vanilla, chocolate, chilli peppers, and quinine are gifts from the American Indians.

http://eruditio.worldacademy.org/article/evolution-cooperation

We need to reform our educational systems, particularly the teaching of history. As it is taught today, history is a chronicle of power struggles and war, told from a biased national standpoint. We are taught that our own country is always heroic and in the right. We urgently need to replace this indoctrination in chauvinism by a reformed view of history, where the slow development of human culture is described, giving credit to all who have contributed. When we teach history, it should not be about power struggles. It should be about how human culture was gradually built up over thousands of years by the patient work of millions of hands and minds. Our common global culture, the music, science, literature and art that all of us share, should be presented as a precious heritage - far too precious to be risked in a thermonuclear war.

We have to extend our loyalty to the whole of the human race, and to work for a world not only free from nuclear weapons, but free from war. A war-free world is not utopian but very practical, and not only practical but necessary. It is something that we can achieve and must achieve. Today their are large regions, such as the European Union, where war would be inconceivable. What is needed is to extend these.

Nor is a truly sustainable economic system utopian or impossible. To achieve it, we should begin by shifting jobs to the creation of renewable energy infrastructure, and to the fields of culture and education. By so doing we will suport human solidarity and avoid the twin disasters of catastrophic war and climate change.

Has the Rise and Growth of the Islamic State Benefitted Iran?

Kimberley Anne Nazareth

The recent attacks in Paris, triggered by the ever growing Islamic State (IS) has caused a great deal of concern not only among the Western nations but in the Persian Gulf as well. The event has questioned the success of the US-led coalition as well as the involvement of the regional countries, particularly Iran, in the battle against the IS. 

 

To that end, has the IS’s existence benefitted Iran in the regional as well as international context, and to what extent? 

 

Regional DynamicsIran is definitely a game-changer. It is deeply involved in the fight against IS in both Iraq and Syria. The Ayatollah Ali Khamenei’s support for the Assad regime is a double-edged sword. It acts as an enabler as it has kept the Assad regime afloat, and a constrainer as it a can influence the activities of the regime. Iran’s support for Assad has caused a clash between Iran and the West and the influence it potentially wields is a reason why the West should engage with Iran.

 

From a strategic point of view, the regional countries have the most to lose if the growth of IS is not curbed. Hence, a committed regional effort is required to dismantle its influence in the region. This includes Iran and the other gulf countries.

 

Though most West Asian countries have joined the international coalition, their degrees of commitment are questionable. Many of these countries are also part of the problem; and they have been indirectly responsible of the spread of the IS.

 

It also means that these countries too have to include Iran in the fold. The regional challenges in the form of proxy wars, flare-ups and sectarian conflicts between the countries have created a security dilemma – which  includes the war in Yemen, the Saudi–Qatar unease, the Iran-Saudi Arabia rivalry etc.; these rivalries have obstructed the effective functioning of the coalition forces as well as creating a parallel crisis in the region.

 

The threat posed by IS has given Iran an upper hand in playing a greater role in regional security issues – reaching out to its nemesis, Saudi Arabia, is one way. But the sectarian and regional flare ups are creating a dilemma. The Gulf States and the others are wary of Iran’s influence, especially in the Shia dominated or ruled countries in the region – which includes Iraq and Syria. Syria has been especially supportive of Iran’s enhanced role in the region. Iran has never backed down from supporting Shiite organisations, especially in its fight against the IS.

International Community
If the regional countries seem complacent, the international community, dominated by the Western powers, are in a worse position. They lack a clear strategy. Their complacency was witnessed in their procrastination to form the coalition. They have also been divided on a roadmap to tackle the Assad situation. There is more that divides them, than unites them especially when Russia is thrown into the mix.

The main question is as to whether Iran should be part of the coalition. There are many like Michael O’Hanlon of the Brookings Institution who advises against such a coalition. Conversely however, strategically, some sort of partnership would be prudent as both Iraq and Syria are not hostile towards Iran, as well as face the common threat of the IS. However, other complications have arisen and Iran and the US are now embroiled in a fight for influence in the region, with Russia who is friendly towards Iran rather than its ‘frenemy’, US. Though their goals do converge, there are other factors, such as Iran’s support of groups like Hezbollah that impede a working relationship.

The US’ battle against the IS has proven to be futile in spite of President Barack Obama’s repeated attempts at reassuring his citizens as well as the international community. The Paris attacks are a clear indication that the IS is still expanding its influence beyond the areas it controls; and that the strategy of the coalition is under-equipped to deal with them.

Iran’s Regional and Global TrajectoriesThe threat posed by IS will not disappear in the near future, and as predicted by many, the crisis will continue for a longer term. It creates a window of opportunity for Iran as a regional powerhouse to play a leading role especially in the Shia-dominated states. However, the regional countries, especially the Sunni-ruled countries are apprehensive of the role Iran should play.

If the international community is serious about its need to dismantle the IS, getting all regional countries to take onus as well as regional collaborative efforts should be promoted with greater fervor. This collaborative effort would further compel Iran into a leadership role.

However, Iran’s changing role in world affairs is viewed with heavy skepticism, especially due to its ‘extracurricular’ activities aimed at one ‘unfriendly’ regional nation at the least. Therefore, at the moment, though Western countries are beginning to see Iran as a problem solver rather than a creator, they are still uncertain.

Prince Charles and William granted access to top secret UK documents

Margot Miller

Prince Charles, heir to the British throne, has had access for more than two decades to top secret government papers, investigative work by the anti-monarchy Republic organization has shown. So has his son Prince William, second in line to the throne. The princes were given access to the papers even though they are otherwise considered too sensitive even for the eyes of middle ranking ministers.

The secret documents have also been routinely circulated to the queen, along with top government ministers, including all members of the cabinet, government ministers in charge of departments, the Attorney General, Chief Whip of the House of Commons and Leader of the Opposition.

The secret documents are contained in the so-called “Precedent Book.” They include all proposals for new legislation as well as records of internal government discussions. While they have been freely handed to Britain’s remaining feudal lords, the government insists that they not be released to the public for at least three decades after publication.

The documents were uncovered only after an extended legal battle led by Republic, which campaigns for the abolition of the British monarchy.

The government fought tooth and nail to block the release of the documents, insisting that they are “highly confidential.” Nonetheless, his Honour Judge Shanks ruled in favour of the release of four chapters of the book during a Freedom of Information (FOI) tribunal in June.

Shanks ordered that a fifth chapter, pertaining to the queen and entitled “Relations with Buckingham Palace,” be kept secret.

The Precedent Book has traditionally been kept in a locked cupboard, within a locked office in a secured corridor inside the Cabinet Office. The newly released documents make clear that both Prince Charles and his chief private secretary, Clive Anderton, have enjoyed unfettered access to the top secret room.

Charles, who has proudly dubbed himself “the meddling prince,” has enjoyed easy access to government secrets to the point where he is “essentially a minister,” Republic’s chief executive Graham Smith noted in response to the exposure.

Charles’ meddling was previously exposed by a 2010 FOI battle spearheaded by Guardian journalist Rob Evans, which secured the release of some thirty letters exchanged by the Prince and the government from 2004-2005.

Most of the letters written by Charles to ministers will never be seen, as a result of amendments to the FOI legislation rammed through by the Blair Labour government in 1997. Blair later expressed regret that the Freedom of Information Act had been allowed to pass into law under his tenure, underscoring the hypocrisy of Labour’s claims to have fought for greater government transparency and accountability.

These revelations have exploded official claims that the royals have no political affiliation or influence under the UK’s parliamentary democracy.

Charles and the queen have enjoyed secret, extra-legal powers that enable them to influence the legislative process, including bills that determine British imperialism’s war policy, documents secured by a 2013 FOI case have already confirmed.

The documents, released over the staunch opposition of the Conservative-Liberal Democrat coalition, revealed that the queen’s consent has been required for passage of major social legislation, including the Civil Partnership Act of 2014, and other legislation relating to higher education, paternity pay, identity cards and child maintenance. Parliamentary bills under consideration are regularly passed to the monarchy to secure consent before being confirmed, the 2013 case showed.

These procedures are far from merely ceremonial, according to John Kirkhope, the legal scholar who led the fight to secure the release of the documents. Far from rubber-stamping legislation with their “Royal Assent”, senior royals exercise “real influence and real power,” according to Kirkhope.

“There has been an implication that these prerogative powers are quaint and sweet, but actually there is real influence and real power, albeit unaccountable,” Kirkhope said.

In one instance exposed by the documents, a parliamentary council warned that without royal consent, a “major plank” of the bill in question would have to be axed.

In 1999, the queen exercised her royal veto to reject the “Military Action Against Iraq” legislation, which contained provisions that would have limited the monarchy’s veto power over war policy.

The monarchy also has power of veto over bills concerning their own hereditary income and personal property. According to the Sunday Times Rich List, the queen has a fortune of £340 million, an increase of £10 million from last year, while Charles is worth over £140 million.

Last year, Charles earned £18 million from the Duchy of Cornwall estates. A spokesman for Buckingham Palace said the prince has never refused consent on legislation concerning his personal wealth “unless advised by ministers.” This begs the question: in which cases did Charles on the advice of ministers veto legislation which would affect his income?

The disclosure of the monarchy’s full access to the Precedent Papers has met with a muted response from the supine media and politicians of all stripes.

Under its new leader, the declared Republican Jeremy Corbyn, Labour has refused to even question why the unelected monarch and her heirs can peruse Cabinet papers or veto bills. Labour merely called for a review into Charles’ access to the papers.

Clive Lewis, Labor’s shadow energy and climate change minister, commented meekly in response to the revelations that, “There needs to be more transparency about his powers and his access to confidential briefings.”

Such calls for “transparency” are an attempt by Labour to whitewash the undemocratic practices that are normally well hidden from the public gaze.

Last year the monarchy cost the British taxpayer £334 million. In the same period, 2.3 million UK children languished in poverty, and three million UK residents were either suffering from malnutrition, or in danger of it.

Despite doing away with the absolute powers of the monarch with the beheading of Charles I during their own revolution in 1649, the British bourgeoisie later restored and maintained the institution as the living embodiment of inherited privilege, social inequality, nationalism and political stability. The monarch rests on a system whose social relations are based on class exploitation and the capitalist nation state system, based on private ownership of the means of production and production for profit.

“Her Majesty’s Most Honourable Privy Council” is central to the maintenance of highly classified state secrets. The Privy Council, a body of advisers to the sovereign, comprises mainly senior politicians, including the Leader of the Opposition. All members swear a ritual allegiance to “not know or understand of any manner of thing to be attempted, done or spoken against Her Majesty’s Person, Honour, Crown or Dignity Royal,” without informing the Council and to “keep secret all matters committed and revealed unto you…”

As the release of the Precedent Papers shows, the monarchy takes an active and influential role in defending the interests of the bourgeoisie, alongside parliament, the secret service and the army. It stands at the very apex of these constitutional mechanisms of class rule.

Puerto Rico faces default on its debts

Rafael Azul

Puerto Rico’s Development Bank (Banco Gubernamental de Fomento, BGF) is in last-minute negotiations with the holders of Puerto Rican bonds over the island government’s $72 billion public debt and an impending default on the next bond payment, due January 4.

The negotiations are occurring following a decision by the US Congress not to grant Puerto Rico protections under Chapter 9 of the US bankruptcy laws.

On December 14 Congress postponed action on a bill that would have provided emergency debt relief for Puerto Rico. That bill, sponsored by Republican Senator Orrin Hatch, included a $3 billion subsidy, reduction in federal Social Security taxes and a federal financial control board.

With bankruptcy protection off the table, the administration of Governor Alejandro García Padilla had lobbied Congress to include the Hatch proposal in an omnibus budget bill for the US federal government. It now appears that Puerto Rico has run out of options and will default on payments next week.

To avoid default, Puerto Rico needs to make a $957 million interest payment January 4, followed by $331 million in February. In July another payment of $956 million is due together with $1.024 billion to redeem maturing bonds at face value.

Despite having embraced a measure that would have subordinated his and future administrations to a Wall Street-run control board, García Padilla denounced congressional inaction: “This fiscal crisis will soon become a humanitarian crisis under the American flag and the Commonwealth will be dragged into massive, costly litigation, which will prevent the Commonwealth from providing essential services to its citizens,” declared the governor.

“By not acting now, Congress has opted for the US Commonwealth to default on its obligations and unfold into chaos. Once again Wall Street has demonstrated its control over Congress; Wall Street rules Congress.”

García Padilla also announced that he would not be running for reelection next November in order to better deal with the payment crisis, thus becoming the fourth one-term governor in a row. The last three carried out layoffs of government employees, school closures, sales tax hikes, attacks on pensions and health benefits and other austerity measures.

In 2009, following the layoff of more than 20,000 employees by governor Luis Fortuño, hundreds of thousands of workers took to the streets in mass protests in a one-day general strike. Another wave of protests of workers and students took place in 2010.

The negotiations between the creditor group and the Puerto Rican government now take place in the heels of an activation, by the García Padilla administration, of a “clawback” clause that would sequester financial resources from various government agencies (transportation, government-owned utilities and others) and transfer those resources to pay holders of Puerto Rican General Obligation bonds (GO bonds) that are constitutionally guaranteed.

Melba Acosta Febo, the BGF’s director, predicted that the “clawback” would force the infrastructure fund AFI to default on their January debt service of $34 million. She declined to predict whether the GO bonds would default on next month’s debt service payment. In previous statements, Acosta Febo has been categorical in declaring that default is a certainty if no action is taken.

The BGF director said that within the next few days it will make a proposal to a bondholders group that includes Millstein & Co., Cleary Gottlieb & Hamilton and CitiGroup. The proposal involves the creation of a new debt instrument, called a “superbono,” as part of an austerity package of restructuring government spending.

It is widely acknowledged that the various hedge funds that hold Puerto Rican bonds, including Oppenheimer Funds and others, and those that insure the bonds, through swaps and other financial derivatives, pressured US congressmen of both parties not to take any action that could potentially force them to accept less than the entire face value of the bonds—which now sell at a steep discount—plus interest payments that are now due.

Anticipating this turn of events, so-called vulture funds have bought Puerto Rican bonds for far less than their face value, with the expectation of making a killing.

Both García Padilla and Acosta Febo recognize that, by turning its back on bankruptcy protection and on debt relief, the US government has effectively made a beggar out of Puerto Rico, forcing it to accept the terms the hedge and vulture funds demand: payment in full on the backs of the Puerto Rican people.

Wall Street and Congress have emphasized the supposed fiscal irresponsibility of successive Puerto Rican governments that were borrowing in response to a decade of economic slump, but in truth, the debt crisis itself was made in Wall Street.

In 2006 Puerto Rico sank into its most severe recession since the 1930s, a direct consequence of the deindustrialization of the island. During the preceding decade the number of industrial jobs had fallen from 160,000 to 75,000, as textile and pharmaceutical firms fled to more profitable locations.

Faced with the unraveling of a post-war model of attracting investments through tax breaks and low wages for its largely non-union work force, Puerto Rico resorted to borrowing to make up for the capital flight then occurring.

Compounding the economic crisis were austerity policies that further shrank the economy, accelerating the decline in jobs, living standards and the tax base. Serial indebtedness chased ever-declining living standards. During the last nine years, Puerto Rico has cut pensions and government jobs, slashed health benefits for teachers, shuttered public schools, imposed new sales taxes (and then raised them from 7 to 11.5 percent), while steeply raising fees for water and power and taxes on fuel.

Despite these draconian measures, the so-called structural deficit in government spending kept going up, and each administration since 2006 sold tax-free GO bonds to bridge the gap.

Wall Street hedge funds happily obliged, attracted by the low-risk and usurious yields of the bonds—rated as junk bonds since last year—with the expectation that neither the Obama administration, Congress or the Courts would act against its profit interests.

Meanwhile the economy continues to crumble. Since 2004 Puerto Rican GDP has shrunk by 13 percent. More than 40 percent of youth are unemployed. Since 2006 the amount of capital leaving the island exceeds new investments. Per capita income is 7 percent less than in 2006 and social inequality is exploding. The official November unemployment rate of 12.5 percent is more than double the US rate.

Over 10 percent of the population has migrated to the US since 2006, including thousands of medical doctors, engineers, teachers and other highly qualified personnel. Presently less than 40 percent of working-age Puerto Ricans have a job or are looking; one-third of the population survives on US food stamp benefits.

Despite his protestations over congressional inaction, García Padilla has contributed to the increasing human misery facing Puerto Ricans with draconian austerity measures, raising regressive sales taxes, reducing health and vacation benefits for public employees and cutting food stamps and public transit.

As is the case in Greece, Spain and other indebted nations, each austerity measure further sinks GDP and living standards and the capacity of the government to extract resources with which to pay debt holders, requiring yet another round of austerity.

Among the measures that are being contemplated for 2016 are the gutting of Puerto Rico’s schools and health systems, the reduction of minimum wages and legislation making it easier to fire workers.

The New York Times, in an article that appeared on December 19, indicated that the Wall Street hedge funds and speculative “vulture” funds oppose any proposal that would allow Puerto Rico, or any of its cities or state agencies, to declare bankruptcy (like Detroit did in 2013).

The article chronicles the campaign of hedge and vulture funds to use their financial clout for Congress to deny bankruptcy protection to Puerto Rico, using massive campaign contributions, deceiving publicity campaigns and self-serving reports on the state of the island’s finances.

The funds also bitterly opposed and campaigned against a December 4 decision by the US Supreme Court to involve itself in part of the debt, the $22 billion owed by Puerto Rican utilities and other public agencies.

Furthermore, the vulture funds seek to create a precedent that would apply to US states such as Illinois, New York and California, which are heavily in debt, excluding them from bankruptcy courts. Puerto Rico’s outstanding debt of $72 billion in fact is only small part of the $3.2 trillion outstanding US municipal and state debt.

The fracturing of the European Union

Peter Schwarz

It is 70 years since large parts of Europe lay in ruins. Great power aspirations, nationalism and fascism made the continent the focus of two world wars, which together claimed nearly 100 million victims. Now, these same tendencies are spreading once again.

Everywhere in Europe, the ruling elites are moving sharply to the right. They are boosting military spending, taking part in the imperialist wars in the Middle East and Africa, sealing up borders and inciting xenophobic sentiments against refugees. They are developing authoritarian forms of rule and building up a police state in order to suppress growing social tensions.

After the attacks in Paris, the Socialist Party government imposed a state of emergency for three months, stationed thousands of soldiers on the streets and deployed the military’s only aircraft carrier to the Persian Gulf to bomb Syria. The beneficiary of this policy has been the right-wing National Front, which became the strongest party in the first round of the recent regional elections.

In Hungary and Poland, governments openly profess their admiration for the authoritarian regimes of the 1920s and 1930s.

In Germany, leading politicians and academics demand that the country again take on the role of a “hegemon” and “disciplinarian” in Europe and aspire to be a major power in the world, as if the crimes of the Nazi regime never happened. The austerity policies that Berlin has imposed on the economically weaker EU members for years have aggravated social and political tensions throughout Europe.

Even the Italian Prime Minister Matteo Renzi, who otherwise is a political follower of the German chancellor, criticized Angela Merkel in the Financial Times this week for pushing economic policies that are fanning the flames of populism and damaging incumbent governments across the continent—and are based on double standards favoring Germany and hurting Italy. Governments in Warsaw, Athens, Lisbon and Madrid had lost their jobs because they followed the policy of fiscal discipline without true growth, Renzi complained.

Numerous recent comments in the media focus on the potential break-up of the EU under the pressure of growing contradictions and tensions.

Reuters correspondent Paul Taylor writes under the headline “Europe’s year from hell may presage worse to come”: “The crises of 2015 have threatened to tear the Union apart and left it battered, bruised, despondent and littered with new barriers.”

EU Parliament President Martin Schulz warned in Die Welt that no one can say “if the EU will exist in this way in a decade”. The alternative, he writes, is “a Europe of nationalism, a Europe of borders and walls. That would be devastating, because such a Europe has led our continent in the past repeatedly into disaster.”

An editorial in the Süddeutsche Zeitung even demands a “Plan B” in the event that the EU breaks apart. The main danger comes less from Greece and the refugee crisis or an exit of Britain than from “neo-nationalism”, the newspaper states.

While these and other comments warn of a break-up of the EU and the possible consequences, they do not answer the question of why nationalism and militarism are flaring up again in Europe. Indeed, they do not even pose the question.

Contrary to the claims of official propaganda, the EU has never overcome the conflicts that made Europe the center of two world wars. The EU does not unite the peoples of Europe, but has always been a weapon of the most powerful economic and financial interests against the working class at home and international rivals abroad. It is a hotbed of nationalism, inequality, dictatorship and war.

The EU is living proof that it is impossible to unite the continent on a capitalist basis. The defence of capitalist private property and the free movement of capital and profits, which are the focus of the EU treaties, inevitably have the consequence that the most powerful corporations in the EU set the tone and the strongest states impose their will on the weaker. Instead of alleviating national and social contradictions, the EU exacerbates them to the extreme.

The enlargement of the EU into Eastern Europe a decade ago did not bring democracy and prosperity. The new members have served the major European corporations as a source of cheap labor. Their welfare programs are being destroyed, wages kept low and unemployment high, while a small corrupt elite enjoy prosperity.

The EU, and especially Germany, took advantage of the financial crisis of 2008 to dictate unprecedented social cuts in the name of fiscal consolidation. In Greece, which was made an example, the average standard of living declined by 40 percent in a few years.

The EU and its members have responded to the growing social tensions with militarism and increased repression. The real or supposed danger of terrorist attacks have served as a pretext for further anti-democratic measures.

With the refugee crisis, the consequences of imperialist wars in the Middle East and North Africa have returned to Europe. The refugee issue has further polarized Europe. While large sections of the population react with solidarity, the ruling circles have unleashed a furious campaign against refugees, building up border fences and fighting each other.

The dangers arising from the break-up of the EU are very real. New wars and dictatorships, even within Europe, loom. This danger cannot be prevented by defending the EU, but only in a relentless struggle against it and the capitalist system upon which it is predicated.

The only way to unite Europe in the interests of its peoples, to use its vast resources in the interest of all and to prevent further wars, is through the United Socialist States of Europe. Only the independent mobilization of the European working class on the basis of a socialist programme can halt the impending disaster.

German trade union chief agrees to €1 an hour jobs for refugees

Dietmar Henning

Rainer Hoffmann, the chairman of the German Confederation of Trade Unions (DGB), has backed the announcement by Labour Minister Andrea Nahles that refugees will be pressed to accept work at €1 per hour in the coming year.

Nahles, a member of the Social Democratic Party (SPD), presented figures from her ministry according to which between 300,000 and 350,000 refugees, among them 70,000 children, will receive Hartz IV benefits for the first time next year. Asylum seekers whose applications have been accepted as well as refugees who are allowed to remain, together with their children, have a right to claim Hartz IV aid.

Along with the Rhineland-Palatinate premier Manu Dreyer, federal government representative for immigration Aydan Özoguz, federal minister for families Manuela Schwesig, and Environment Minister Barbara Hendricks (all SPD members), Hoffmann announced, as part of a twelve-point programme for “sustainability and integration in Germany,” the creation of 100,000 new “labour opportunity” positions, i.e., €1 jobs.

In an interview with Die Welt, Hoffmann said, “I can imagine that for a certain period of time we would create a social labour market for socially necessary activities that otherwise would not be carried out.”

The €1 jobs are anything but a “social labour market.” They do not involve a labour relationship. No wages are paid. Instead, in addition to Hartz IV social welfare benefits, claimants receive compensation up to the equivalent of €1, or, occasionally, €2 per hour for a thirty-hour work week. The claimants have to use the additional compensation to cover costs such as transportation. If they become sick and are forced to stay at home, they receive no additional compensation.

The unemployed rarely accept these jobs voluntarily. They are compelled to do so with the threat of benefit cuts if they do not.

Forced community service is a better description of the €1 jobs than the euphemistic term “social labour market.” Academic studies have compared these jobs to “welfare-to-work” programmes and the underlying concept of workfare, referred to in Germany as “working for the bare essentials” and “the duty to work in exchange for state provision of the basic necessities of life.”

Hoffmann, who is also an SPD member, suggested that, as with the unemployed, the unions would demand “a minimum wage and social insurance for the employees.” However, since the €1 jobs do not amount to a “labour relation” in the legal sense, they are not covered by social insurance.

Hoffmann nonetheless supports this form of coerced community service. “We will have to see whether the refugees are suited to that,” he said, adding that “there should be projects in which we try out different things.”

Like the local authorities that employ €1 workers to carry out “socially necessary work,” refugees are to be made responsible for the integration of new refugees. The SPD politicians’ twelve-point programme states that local authorities offering labour opportunities will profit “from their support for refugees.”

The €1 positions do not result in real jobs. Fewer than one in ten people holding such positions move to regular employment. Most unemployed people become further removed from the labour market while working at a €1 job.

In a 2011 study of such jobs in Munich, the Institute for Labour Market and Career Research, a branch of the federal labour ministry, wrote, “Employment in a mini-job curtails the employment prospects of participants by an average of 40 percent.” The negative impact in regions with high unemployment, such as eastern Germany and the Ruhr, is even more severe.

Although the DGB officially calls for minimum wage jobs to provide social insurance, Hoffmann knows full well there is virtually no chance that people out of work for more than a year will receive such benefits. Moreover, for six months, the unemployed can be hired for less than the minimum wage of €8.50 per hour.

Since more refugees are arriving than companies require, restrictions on immigration are being strengthened and expanded, in the first place in the form of the “acceleration of asylum law.” Language courses and assistance in finding work are available only to refugees with “strong prospects of being permitted to stay.”

The distinction between refugees with “high” and “low” prospects of being allowed to stay is a euphemism for distinguishing between refugees who, in the words of Christian Social Union official Günther Beckstein, “are useful to us” and those “who exploit us.”

The federal and state governments, corporations and trade unions are working together to deport the majority of refugees, while exploiting the rest as a cheap labour force.

Canada’s central bank expresses trepidation over economic downturn

Roger Jordan

Canada’s economic output stalled in October, according to figures released last week. This followed a contraction of 0.5 percent of Gross Domestic Product in September, indicating that Canada’s economy is struggling to pull out of the recession it experienced in the first half of 2015.

In all, Canada’s economy has failed to grow in seven of the year’s first ten months.

Recent weeks have witnessed a precipitous fall in the value of the Canadian dollar, as the country’s economy is rocked by the collapse in commodity prices and by anemic growth in the US.

In the wake of the US Federal Reserve Board’s Dec. 16 decision to increase interest rates, the Canadian currency declined to US $0.72, its lowest level in eleven years. Analysts are predicting the currency will soon fall below the 70-cent mark. It has already lost 17 percent of its value this year, falling to an eleven-year low against the US dollar.

The deepening economic slump is being driven by the global crisis. The collapse in oil prices, which have been halved to $36 per barrel over the past twelve months and are down from over $100 over the past year and a half, together with a similar sharp slide in other commodity prices, have hit Canada’s resource- and export-dependent economy hard. The economic downturn in China, whose demand for raw materials helped maintain commodity prices, has played a major role in this.

The anticipated boost to exports as a result of the Canadian dollar’s sharp fall has not materialized, mainly because other currencies, such as the Mexican peso, have declined at a similar pace against the US dollar. Mexican exports to the US are rising steadily, while Canada’s have been stagnant for some time. Last month, Ottawa was overtaken as Washington’s largest trading partner by China.

A recent Bank of America/Merill Lynch report noted that capital outflows from Canada are taking place at the fastest rate among developed countries. In a sharp reversal from twelve months ago, when the Canadian economy saw an inflow of capital chiefly in the energy sector equivalent to 4.2 percent of GDP, it is now experiencing capital outflows equal to 7.9 percent.

Even worse could still be to come. There are mounting fears that a collapse of the overheated housing market, or a series of bankruptcies among oil producers in Alberta due to the decline in the currency and oil prices, could provoke a broader economic crisis.

Responding to the darkening clouds over the economic outlook, Bank of Canada (BoC) Governor Stephen Poloz gave a speech December 8 laying out measures the bank would be prepared to take in the event of a major crisis. Having reduced interest rates twice already this year from 1 to 0.5 percent with no discernible impact on the economic slide, Poloz declared the bank could follow the example of the European Central Bank (ECB) and introduce negative interest rates. He therefore announced a reduction in the Bank of Canada’s “floor interest rate,” below which it will not lower rates, slashing it to -0.5 percent. This goes significantly further than during the 2008-09 crisis. Then the bank declared it would be prepared to lower its prime lending rate to as little as 0.25 percent.

Poloz also said that in the event of a major crisis the bank could resort to “quantitative easing,” that is, the making available of billions in cheap credit to the financial elite to fund stock market speculation. While such programs have been pursued by the ECB and above all by the US Federal Reserve, such a step would be unprecedented for the BoC.

The central bank chief sought to reassure his audience, and the markets, that he was simply outlining future policy options for the bank. “Today’s remarks should in no way be taken as a sign that we are planning to embark on these policies,” he claimed. “We don’t need unconventional policies now and we don’t expect to use them.”

Poloz based this assertion largely on the claim that fiscal stimulus implemented by the government tends to be more effective than monetary policy. On this basis, he has welcomed the Liberal government’s intention to run budget deficits to fund an infrastructure investment program that will see up to an additional $25 billion invested over the next three years.

Yet in the less than three months since the Liberals won the federal election with infrastructure spending as one of their key campaign pledges, the government’s financial position has significantly worsened. This has led Prime Minister Trudeau to abandon the Liberals’ promise to limit the federal budget deficit to $10 billion per year in their first two years in office. Senior government officials are now saying only that they will ensure that the total national debt-to-GDP ratio continues to decline. This would allow annual deficits of up to $25 billion per year.

While the government is giving itself some leeway to run larger deficits in the short term, Trudeau insisted in a recent interview that the Liberals’ commitment to balance the budget prior to the next election in 2019 is “cast in stone.” This means that the government will have to go substantially beyond the $6 billion in annual “savings” it pledged to find in the final year of its mandate.

Compounding the threat facing workers from further austerity is a series of troubling developments that could trigger even greater economic turbulence.

Household debt reached record levels in the third quarter, rising to 163.7 percent of disposable income from 162.7 percent in the second quarter. This places Canada among the countries with the highest level of household debt in the world.

Poloz acknowledged December 15 that rising debt levels pose a significant risk to the property market. BoC figures show a dramatic expansion of households, especially among younger adults, in extreme indebtedness, with 8 percent of households now having debt worth more than 350 percent of gross income. The rate of “extremely indebted” has actually doubled since the 2008-09 economic crisis.

The Bank’s “financial systems review” described the risk of a price drop in the property market as “elevated” and admitted that the consequences of such a development would be “severe.” The other elevated risk it mentioned was the sharp economic contraction experienced by China and other “emerging markets.”

Earlier this month, the government announced measures to try to cool the overheated housing market in Toronto and Vancouver. But commentators fear that this could have the unintended consequence of accelerating the decline in housing prices in Alberta, Canada’s main oil-producing province, potentially leading to a spike in personal bankruptcies and mortgage defaults.

Alberta has undergone a sharp economic contraction this year, with final figures for 2015 expected to show a 1.1 percent decline. In 2014, 35.7 percent of Alberta’s GDP was derived from capital investment, three times the national average, and the energy sector accounted for 60.7 percent of this. The Economics Society of Northern Alberta gloomily predicted that the oil price drop, which has prompted billions to be cut from the oil companies’ capital spending budgets, will create a tax revenue deficit for Alberta of $11 billion per year for each of the next 3 years.

A total of 63,800 workers lost their jobs in the first eight months of the year in Alberta, almost as many as in the whole of 2009 at the height of the global downturn.

According to the latest predictions from Goldman Sachs, oil prices could drop as low as US$20 per barrel. Such levels could force many of the already struggling oil producers in Alberta’s tar sands, where production costs are among the highest in the world, into bankruptcy or make them prime candidates for takeover by foreign competitors keen to seize the opportunity afforded by the cheapened Canadian currency.

The federal Liberal government is so concerned about the state of Alberta’s economy that it is establishing a council of Canadian and high-profile international politicians, economists and businessmen to advise it on how growth can be sustained in Alberta’s economy.

A similar crisis is unfolding in Newfoundland, another oil-producing province. Faced with a provincial budget deficit that has ballooned to $1.9 billion, the newly elected Liberal provincial government has announced a series of emergency measures, including a hiring freeze, and is vowing to take further austerity measures, including potential wage and job cuts, early in the new year.