Tue May 21, 2024
May 21, 2024

Spain: A new interest rate hike spells the plunder of worker’s salaries

By Corriente Roja

The European population is witnessing a new rise in interest rates mandated by the European Central Bank. The US Federal Reserve is planning the same hike in interest rates, which have gone from 0% barely a year and a half ago to the current 4.25% in a trend that has no end in sight. At the same time, the Banks are announcing historic profits and the CEOE (Spanish Confederation of Employers’ Organizations) recognized in its 2022 study that corporate profits “have accelerated the rise in prices.”[i]

To justify the rise in interest rates, the propaganda media say that it is to combat inflation. As a result, they say they need to cut into workers’ wages in order to reduce household consumption.

The causes of inflation

If we follow the simplistic logic of the ECB and the “progressive” Spanish government, the responsibility for the high inflation rates lies with workers who are earning a lot of money and consuming goods and services like crazy, which is overheating the economy. Following that vein of logic, the rise in interest rates is the “cold water” that will prevent the economy from overheating. As a result, the 2023 Employment Outlook report published by the OECD (Organization for Economic Cooperation and Development) highlights that Spanish workers will lose 1.2% of their purchasing power due to inflation.

The reality is quite different; inflation is determined by the sum of many factors. The first relates to the history of the financialization and monetarization of the economy introduced in the 1970’s by the neoliberal phase of capitalism. In other words, neoliberalism sought the conversion of absolutely all areas of life and social relations into a monetary market. Marx said that capitalism turns everything it touches into a commodity; I suspect that never in his wildest dreams did he think that even the most intimate thoughts of people would be turned into commodities, as is now done one social media. “The dreams of (capitalist) reason produce monsters,” to paraphrase Spanish painter Francisco de Goya.

The formula for the circulation of capital, M-C-M’, which implies that for invested capital M’ (money) to increase, there must be production of C (commodities), tends to be simplified in M-M’, with an increase that is given, not by the increase of the exploitation of the working class, but by speculative and monetary maneuvers.

But the basis of capitalism, despite itself, remains the production of commodities, which is based on the law of value (“the value of a commodity is determined by the labor time socially necessary to produce it”) and the consequences that the increase in productivity has on the rate of profit. It is precisely the downward trend of this tendency that favors the neoliberal formulas of financialization and monetarization of the economy. This is because capital seeks high returns on its investments that it does not find in the productive apparatus.

Forty years after the worldwide triumph of these formulas, which have led to the dismantling of all the social victories of the 1950s and 60s, the “pitcher” of the neoliberal milkmaid’s tale has exploded and spilled all the milk. The crisis of 2007/8 was the beginning of the end of this phase, with the bank failures (Lehman Brothers, the Spanish savings banks system, etc.), the Great Recession, and the economic and geo-political consequences that followed. The social and psychological ones deserve a specific analysis.

The pandemic brought the world economy to a sudden halt, disrupting distribution channels based on “just in time” production and stockless labor, i.e., on the speed of capital circulation that accelerated the process of accumulation, reducing distribution costs to a minimum. This went down the drain when these channels were closed.

Just when it seemed that the pre-pandemic rhythms were being recovered, war broke out between Russia and Ukraine. This conflict is a manifestation of yet another of the profound changes provoked by the crisis of 2007/8: the emergence of new powers demanding their place in the world market in the face of the decline of the hegemonic powers, the USA and its “allies” in the European Union.

In the fight against the pandemic, and to prevent the consequences from being totally catastrophic, the states raised their debt ceilings, the European Union relaxed the conditions for public deficits, and made millions of dollars in investments in pharmaceutical companies to urgently research vaccines, etc. This massive injection of money led to its devaluation, which is now returning in the form of inflation.

To this increase in the deficit must be added the billions of euros that the US and the EU are going to spend on weapons and military investments. In fact, the most plausible prospect is that NATO states will continue to increase their deficit with arms spending, a minimum of 2% of GDP, as they approved at the Madrid Summit last year.

All this is wrapped up in the investment effort of the “next generation” funds to increase the competitiveness of the European and Western economy vis-à-vis its Chinese-Russian “enemies.” This is some 750 billion euros which they hope to recover if competition allows it. Again, this is because capitalism remains a mode of production based on the laws of the market and competition.

A war economy such as the one approved at the Madrid Summit and the demands of productive change due to the climate crisis are forcing states into an investment effort which leads, inexorably, to the devaluation of currency. As the issuance of the necessary currencies increases, their real value falls, and more is needed to maintain purchasing power which thus generates inflation. Prices inflate because each euro invested is worth less and more is needed to stay afloat.

It is not wages and private consumption that generate inflation, but public spending and especially spending on destructive goods such as armaments, which do not increase social wealth, but destroy it. For everything to flow, the money must be taken from somewhere, and as usual it is taken from the increased exploitation of the working class.

Rising interest rates: a shot in the arm for the Banks

Behind the campaign that argues that raising interest rates is for the benefit of society, is the truth that once again, the states, with the ECB leading the effort, are acting as Lenin defined them as the “central committee of the bourgeoisie.”

The rise in the cost of borrowed money due to the increase in interest rates has two parallel effects. On the one hand, it favors the concentration and centralization of capital since it is the big banks that can face the coming contraction of the market with better solvency. This is to say that it is a measure tailored to their own needs.

The second effect of the rise in the price of money is that it means the plunder of workers’ paychecks. Since it directly affects necessities such as housing, any increase in the price of money means a transfer of income from wages to the income statements of banks who are already experiencing record profits. For example, media headlines have reported a “boost in profits” at Santander Bank, as it has improved its accounts this year due to rising interest rates. Meanwhile, those who have to pay a mortgage have seen their monthly payments rise as much as 200 to 300 euros per month.

At the beginning of this year, the system trembled again when several medium-sized American banks and Credit Suisse declared bankruptcy and were subsequently rescued. The specter of Lehmann Brothers shook the “central committee of the bourgeoisie” (the ECB and the states who act in concert with it) who fears facing a new Great Recession in the context of a war economy.

The policies of “no one left behind” and “subsidies”

Faced with the devastating effects of inflation and rising interest rates on wages and the working class, they have two options. On the one hand, the far right argues that we have we leave it up to the laws of the “survival of the fittest” and “every man for himself” as the Italian government is doing. They have notified 169,000 families that as of January 1 they will no longer receive the so-called “citizenship income.”

The “progressive” Spanish government has opted for another plan that they call “no one left behind.” They have dedicated themselves to subsidizing everything that can be subsidized (cultural events, transport prices, etc.) in addition to the “universal inheritance” promised by SUMAR in its program. However well-intentioned these measures might be, they do not solve the underlying problem because they do not address its structural causes.

In fact, the policies of tackling social problems based on subsidies aggravate the problem. This is because it generates more deficit and public debt that the working class will have to pay at some point. What is more, it is a policy that only fattens the market, which reabsorbs the subsidies by adjusting prices to the new income. Without price control measures, subsidies are only food for speculation.

The EU has already announced that by 2024 fiscal easing will end and the 3% of GDP ceiling for public deficits will return. If we take into account that NATO approved the 2% minimum for military spending, it does not take a great mathematician to deduce that 1% of GDP is left for social spending. The policy of subsidies and social spending has an expiration date, which is January 1, 2024. The fact that this is the same day that the Italian government announced the end of the “citizen’s income” is no coincidence.

To be radical is not to insult the enemy – “it is not necessary to insult him to defeat him,” said Trotsky-, but to go to the root of the problem in order to, from this perspective, propose solutions. And we must take up the solutions offered by socialism in the context of an absolutely decadent capitalism that puts humanity in an infernal spiral of ecological, social, economic and political crisis.

It is the social relations of capitalist production which are at the origin of inflation, it is part of its very structure since it depends on the buying and selling of merchandise, as Marx argued, and from speculation with prices. Any economic monetarist or financial measures meant to counteract it only increases the suffering of those who pay for it with their labor power. It is only possible to stop this suffering with the socialist transformation of society.


[i] El Confidencial

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