Economic update: July

We are in the first moments of an economic crisis more serious than anything experienced in living memory. The World Bank’s “baseline forecast” envisages a “5.2 percent contraction in global GDP in 2020—the deepest global recession in eight decades.”[1] Even that assumes we are living through the most optimistic scenario.

It is necessary to be aware of current proposals to solve the unfolding economic crisis, proposals that are advocated by leading institutions of international capital: the International Monetary Fund, the Organisation for Economic Co-operation and Development, the World Bank, and the European Central Bank. The proposals offered by these institutions outline the contours of a strategy that will be pursued over the coming years to attack the gains of workers, already eroded since the last recession.

It is also important to consider the role of the European Union and the euro zone, particularly when the pandemic has bolstered support for the former and the mechanisms of the latter will most probably be responsible for overseeing the proposals we now turn to.

The proposed solutions

As mentioned before in Socialist Voice, covid-19 is merely a catalyst for an economic crisis that was long overdue. High rates of corporate debt and historically low rates of profit were driving the global economic system towards a long-overdue recession. Capitalism—an economic system that moves in recurring cycles of boom and bust—is the underlying problem; the pandemic has simply accelerated contradictions late in the process of unfolding.

The IMF, OECD, World Bank and ECB offer solutions to the crisis by breaking up recommendations into two periods. The first considers the present and extends into the medium term, where governments struggle to contain the pandemic; the second period considers the long-term effects once the virus has been brought under control.

This is where the serious attacks will be launched. None of these proposals can address the underlying problems created by the capitalist mode of production, the very system that has brought us to this breaking-point.

Policy proposals for the first phase: Containing the spread of covid-19

There appears to be broad consensus that the right course of action during the initial stages of the pandemic is to expand both the monetary supply and national debt. This is advocated as necessary to support capital and, to a lesser extent, labour. Here in Ireland a recent publication by the Parliamentary Budget Office exemplifies this position:

The COVID-19 virus outbreak and the dramatic economic restrictions will have a significant effect on the public finances. Given the unprecedented scale of business closures to prevent the spread of the COVID-19 pandemic, extra spending will be needed to help mitigate the impacts on individuals affected. This additional spending will result in a budget deficit in 2020. Lower tax receipts (e.g. income tax, VAT and excise) will result in an even larger deficit. This will cause debt levels to rise and depending on the duration and scale of the COVID-19 pandemic, this could be by a substantial amount.[2]

This issue of higher debt lays the foundations for implementing “structural reform” in the second phase. It is quite clear from the above that the cost of the immediate crisis will be paid for through increases in national debt. The average person will be expected to pick up the bill for placing capitalist enterprises on life support as workers are laid off. The workers are being forced to accept lay-offs and lower wages while the bosses have their assets protected with cheap loans funded at the expense of the public purse.

The idea of nationalising distressed businesses, or even the moderate proposal of seeking equity in return for aid, is beyond the imagination of the politicians managing this crisis. They would rather write blank cheques now and force their payment on the people tomorrow.

Second phase: re-opening of the economy


There is broad consensus that fiscal support deemed necessary during the preceding period should slowly be rescinded. The OECD is not in favour of a harsh and immediate austerity shock, as “an excessively quick fiscal consolidation could stifle growth excessively, as some OECD countries experienced after the global financial crisis.”[3] The IMF is in agreement, arguing that, “where fiscal space permits, as targeted fiscal support is unwound, it can be replaced with public investment to accelerate the recovery and expanded social safety net spending to protect the most vulnerable.”[4]

It is important to note that these are not calls to end austerity: they are statements of intent to impose a more gradual form of austerity. As in the case of the IMF statement, it is hard to imagine “fiscal space” for countries beset by mass unemployment, reduced tax receipts, and the burden of significant debts accumulated over the preceding period. The pandemic is being presented by the OECD as an opportunity to recalibrate economies to the needs of international capital—which leads us to the next point.

Attacks on labour

The intention to attack labour is couched in terms of the reallocation of resources to sectors that will be successful after the pandemic. The IMF argues that “policymakers should also address factors that can impede this reallocation, including barriers to entry that favor incumbents at the expense of potential entrants and labor market rigidities that deter firms from hiring.”[5] It is not just the unemployed who are going to suffer but those who are in employment.

The pandemic provides the perfect opportunity for implementing “structural reform” of the labour market. Many countries are already experiencing high rates of unemployment, a favourable condition for capital to launch attacks on organised labour. The World Bank recommends that in advanced economies “social safety nets, including enhanced unemployment benefits, need to be designed to be flexible, efficiently administered, and well-targeted,”[6] a polite bureaucratic way of stating that one should not seek to undermine the benefits of a reserve army of labour.

A body of desperate, disorganised workers deprived of social supports is the goal. Without rapid and immediate organisation, implementing these attacks will be child’s play.

Socialisation of private debts

The issue of who will shoulder the burden of paying for the crisis should not be a mystery to anybody who lived through the last recession. The burden will largely fall on the worker. Socialisation of private debt is clearly advocated, with the IMF stating that “easing reallocation will also involve actions to repair balance sheets and address debt overhangs—factors that have slowed past recoveries from deep recessions.”[7]

The OECD also acknowledges the need for increased taxes to pay for the debts accumulated throughout the pandemic, and even makes pleasant noises about increasing rates of taxation on capital. We witness the milquetoast proposal that “multinational enterprises pay a minimum tax [which] would strengthen revenue raising capacity and could be seen to contribute to fair burden sharing.”[8] The fact that these proposals are even being floated is indicative of the seriousness of the crisis—which brings us to the question of the EU.

Renewed legitimacy of the EU

Levels of support for the EU have risen significantly, despite its poor response to the pandemic, Ireland being the most supportive of EU membership.[9] A recent report by Eurobarometer echoes this strong support from Ireland, even when “a majority of respondents are dissatisfied with the solidarity shown between EU Member States in fighting the Coronavirus pandemic . . . (57%) share this feeling of dissatisfaction.”[10]

Regardless, people continue to place, or misplace, their faith in the EU, as more than two-thirds of respondents (69%) want “the EU [to] have more competences to deal with crises such as the Coronavirus pandemic.”[11] Further, 66 per cent[12] of Irish respondents are satisfied with measures taken by the EU to fight the pandemic. Far from tarnishing the legitimacy of the EU, the current crisis seems to have generated further support for integration.

On the other hand, we can see that signs of disillusionment within the euro zone are contingent upon people’s worsening economic situation.[13] Low levels of trust in the European Monetary Union and ECB “hinge to a large extent on citizens’ perceptions of their personal financial situation and the overall economic situation,” two factors that seem likely to worsen significantly over the coming years.[13]

This presents a contradiction. On the one hand we have the desire of Irish and EU citizens to see increased levels of integration, which, it is believed, will help improve their lives in the face of crises like the present one. On the other hand we have the economic policies that member-states of the euro zone are legally bound to during crises, policies that worsen the lives of working people through the imposition of austerity and attacks on labour. Though these rules have been loosened during the current phase to put large sectors of the capitalist system into hibernation, we see that this will not persist into the future.

The need to organise

Economic disillusionment presents opportunities as well as threats. It is no coincidence that support for the far right has increased throughout Europe since the 2008 crisis. When the hegemonic ideology of liberalism loses its legitimacy and, more importantly, its monopoly over the idea that it is the only system to co-ordinate peace, progress, and prosperity, a front is opened up for either radical change or a period of deep reaction.

Without an organised left capable of articulating a vision of a future beyond the capitalist mode of production, the ground is ceded to the forces of xenophobic, racist and reactionary nationalism that scapegoat the structural problems of capitalism on immigrants and minorities.

The capitalist class co-ordinates its strategy brazenly at the international level, prescribing how the world will be reshaped after the pandemic. It seeks to play the working people of the world against each other so as to increase productivity, as the World Bank advises:

The negative outlook ahead means that, after addressing the immediate health crisis, countries need to make productivity-enhancing reforms a priority. These include facilitating investment in human and physical capital, as well as in research and development; encouraging reallocation of resources toward more productive sectors; fostering technology adoption and innovation; and promoting a growth-friendly macro-economic and institutional environment. [p. 171][14]

This unfolding crisis necessitates a response to three lines of attack that will be mounted at the national and the European level against working people in Ireland and throughout Europe. The capitalist class are not hiding their intentions, so there is little excuse to be unprepared for this crisis as it unfolds. These three lines of attack are ones we are familiar with from the last recession:

  1. the imposition of austerity,
  2. the transfer of private debts to the public purse, and
  3. “structural reform” in its many guises, particularly in the context of attacks on organised labour.

Our response, now more than ever, must be based on international co-ordination. Our solution must be as clear as it is radical: the international system of capitalism must be abolished, in favour of building an economic system that plans, organises and produces on the basis of the needs of the many, not on the desire to accumulate profits for a few.


  1. World Bank, Global Economic Prospects, June 2020/(
  2. Parliamentary Budget Office, “National Debt: An Overview” (Houses of the Oireachtas, April 2020), p. 20.
  3. OECD, OECD Economic Outlook, vol. 2020, issue 1: Preliminary Version (OECD, 2020), p. 50 (
  4. IMF, “World Economic Update, June 2020” (International Monetary Fund, June 2020).
  5. Ibid.
  6. World Bank, Global Economic Prospects, June 2020, p. 48.
  7. IMF, “World Economic Update, June 2020.”
  8. OECD, OECD Economic Outlook, vol. 2020, issue 1, p. 52.
  9. Luke McGee, “Four years after Brexit, support for the EU surges in Britain,” CNN (, n.d.
  10. Julien Zalc and Robin Maillard, “Uncertainty/EU/Hope: Public Opinion in Times of Covid-19,” A Public Opinion Monitoring Study, ed. Philipp Shulmeister (Brussels: Directorate-General for Communication of the European Parliament, 2020), p. 8.
  11. Ibid., p. 8.
  12. Ibid., p. 28.
  13. Stephanie Bergbauer et al., “Citizens’ attitudes towards the ECB, the euro and Economic and Monetary Union,” ECB Economic Bulletin 2020, no. 4 (June 2020).
  14. Global Economic Prospects, June 2020.