The US Federal Reserve has cut short-term interest rates by half a percentage point to their lowest level in almost forty years. These rate cuts takes interest rates below most estimates for inflation, meaning the real cost of short-term borrowing is now negative. By cutting the interest rates from 6.5% to 2% in 10 months the Fed are aiming to revive the US economy recognising its importance as the engine that drives the world economy.
This move was quickly followed by the Bank of England who made a similar 0.5% cut and the European Central Bank (ECB) who also introduced a 0.5% cut. Wim Duseinburg of the ECB stated evidence that the global slowdown will be deeper and last longer than previously thought was the main reason behind these interest cuts.
In its statement the Federal Reserve said: 'Although the necessary reallocation of resources to enhance security may restrain advances in productivity for a time, the long-term prospects for productivity growth and the economy remain favourable and should become evident once the unusual forces restraining demand abate.' In otherwords, once the economy overcomes its cyclical crisis of overproduction, combined with the crisis of confidence due to the events of 11 September, then the economy will go back into a boom - eventually!
The recession in the US economy is dragging the rest of the world down. Article after article, reports on the crisis spreading to countries all over the world. Argentina is reported to have effectively defaulted on its international debts. Germany GDP growth rate for this year has been adjusted down to 0.75%, and its unemployment rate rose sharply in October to nearly 4 million. 'We are not on the edge of recession, as the institutes said. We already have one foot in recession,' said Martin Hufner, chairman of the German bank economists committee.
The eurozone economy is reeling from one blow after another. A sharp fall in eurozone industrial confidence is combined with falls in activity in the French and Italian service sectors. The recession in Germany combined with the recession in the US will guarantee that not just the eurozone economies but the whole of the European Union will move into recession.
'From the once booming Ireland to chronically depressed eastern Germany, from Spanish airlines to French telecommunications, jobs in the eurozone are disappearing by their tens of thousands every month,' -
Financial Times 7 November 2001.
Sabena (Belgian national airline) staff occupied Brussels airport after discovering that the company had be allowed to go bankrupt by the government with the potential loss of up to 12,000 jobs. Alcatel the French equipment supplier plans to cut 32,500 jobs. In Germany the four largest banks - Commerzbank, Deutsche, Dresdner and HVB Group- have announced 27,000 job losses. Once all of the recent job losses have been included in the official calculations, it seems certain that the eurozone will report successive monthly increases in unemployment for the first time since the third quarter of 1993.
In Britain it is estimated that 36,000 jobs have been lost since 11 September and a further 100,000 jobs are expected to go by Christmas. 80% of social services across the country are facing cuts, and in Northern Ireland severe cutbacks including the closure of hospitals are to be inflicted on the NHS. The announcement of 2,000 redundancies at Bombardier Shorts is also a serious blow to the economy but will unfortunately be followed by thousands of more.
In the south of Ireland, Job losses are now dominating the news. The Celtic Tiger economy has been declared officially dead by Maurice O'Connell governor of the Irish Central Bank who said that the era of the Celtic Tiger was over. This statement was made to the Oireachtas (Irish Parliament) Joint Committee on Finance less than 24 hours after the Tanaiste (deputy Prime Minister) Mary Harney said that the economy was still growing. Nearly 13,000 people have lost their jobs so far this year, which is a dramatic turnaround from only a short time ago when the government was travelling around the world trying to encourage up to 200,000 immigrants to come to Ireland to overcome the labour shortage!
Redundancies are once again set to become a major political issue across Europe and the US. 'Even after a period of strong economic expansion, the eurozone has been unable to reduce its jobless rate below 8.3%.... Governments face a still harder task as the steepest slowdown in a decade starts to take hold,'
Financial Times 7 November 2001.
The world recession is now beginning to take a firm hold at a rapid speed. The political repercussions of this recession make not unfold as fast, but they will come, and the consequences will see millions of workers around the world taking part in struggles that challenge the very existence of capitalism.
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