The Collapse of Sterling

Translated from BC febbraio-marzo 2009, "Il crollo della sterlina: il fronte inglese della crisi economica"

In the early days of February 2009 the Bank of England lowered the lending rate to one percent, a figure that the subjects of her Majesty have not seen since 1694; so more than three centuries had to pass before seeing interest rates so low again. The historic decision of the Bank Of England was an obvious one, given the very serious crisis that is bringing the entire capitalist economy to its knees on an international scale, and this further cut in the lending rate was made with the intent to revive the asphyxiated British economy, an economy that more than others seems to be suffering the bite of crisis.

When in the summer of 2007 it became manifest in all its virulence, the crisis on world financial markets as a result of the bursting bubble of U.S. subprime mortgages, bourgeois economists and politicians were anxious to reassure the investors who feared losing their savings that this was a typical market correction, after years of euphoria inevitably elements of rationality had to be re-introduced in the management of savings. There was nothing to fear because the real indicators were all pointing upwards and the initial estimates were that by the second half of 2008 the markets would have found the necessary balance so that the crisis determined by subprime mortgages would soon pass into oblivion. Prophecy has never been disproved so dramatically by the harsh laws of reality and capitalism on a global scale is experiencing one of the most serious crises of its history. Certainly it is the most serious crisis of mature capitalism, and is putting on the agenda complete overturning of the old imperial hierarchies that have hitherto governed the world.

This is a crisis that necessarily shifts the balance consolidated on the imperialist chessboard in the last 60 years, after the close of World War II. If the epicenter of the crisis is Wall Street and the economy of the U.S., it is the British economy which is paying a higher price for this crisis than any other in the world, for Britain is linked to the U.S., not only for historical reasons but also for strategic choices made by the British bourgeoisie. Without wishing to repeat here the economic history of Britain in recent decades to understand the current economic crisis that has led to the collapse of sterling against the dollar and especially the euro, it should be remembered that the U.S. economy and the economic policy of the British have marched hand in hand from the end of the seventies. It was at that time that with the rise to power of Margaret Thatcher, came the turning point in managing the crisis of the third cycle of accumulation, with the complete liberalization of financial markets. In no time the United States and England, thanks to their weight and the imperialist role played by the dollar and partly also by the pound, were placed at the center of the system that has made the production of fictitious capital, the leverage to support the processes of capital accumulation which is put in difficulty due to the fall of the profit rate in industrial sectors. For over 30 years the British economy has had almost the same advantages of the imperialist United States, both in relation to oil revenues as well as the role played by the London stock exchange, a kind of European Wall Street. During these three decades the economic policy choices of American and British government were identical, and the same content can be seen in the political and military sphere. Thanks to the presence of oil off the North Sea, England has had huge benefits from the strategic choice of the U.S. to impose its imperialist domination on the management of the oil price, so that in all wars for the management of oil the United States and England were the most zealous in taking up arms. This identity of interests can be seen in the process of transformation of the two economies starting at the end of the seventies, whereby entire industries have been abandoned in favor of financial assets. All this was possible thanks to the role played by the imperialist U.S. dollars and to a lesser extent by the pound, though no longer a leading currency in the world, has maintained in recent decades a highly significant role in the international monetary context.

For the pound and the overall British economy, an important negative backlash was the appearance on world money markets of the new European currency, the euro, which meant that the old pound had too narrow an economic base to win the fight for domination of the currency markets. The euro has placed a further strain on the dwindling power of the pound on currency markets of the old continent, forcing, in the medium and long term, the British bourgeoisie to face the choice of entering the European Monetary Union or continuing to live in the shadow of the power of the dollar for some time yet. The crisis that is raging globally on international capitalism has accelerated this process and is not just a coincidence that in the first round of the crisis the pound has sank dramatically, against the euro by over thirty percent in a few months. To understand the consequences of the devaluation it has to be considered that due to the devaluation, the English income per capita has decreased by 35% during 2008, so that the Italians have become, thanks to the misfortunes of others, richer than the English in terms of income per capita. It is times of crisis such as the current one which embitter the imperialist competition for the division of financial income. For the ruling class in Britain, it is now time to make a choice between well-defined alternatives; to join the euro or go ahead with their monetary autonomy, linking sterling ever more to the dollar. Whatever the final decision of the English bourgeoisie, the ones who have to pay the greater consequences of that choice are, as always, the workers, who will be forced to endure another heavy attack on their already precarious living conditions and working conditions.