from the DIAMAT BLOG:
One of the key features of a dialectical contradiction is its tendency to become more intense as it moves toward resolution. A defining characteristic of a dialectical contradiction is that the opposite sides interfere with each other. Unless one side is very weak, each side prevents the fullest possible development of the other. In class conflict, for example, the working class is oppressed by the capitalist class, but worker resistance also prevents the capitalists from fully realizing their aims.
Contradictions Tend to Become More Intense
"Intensity" in a contradiction means the degree to which the two sides interfere with each other. It is important for two reasons. One is that the intensity of contradictions must increase if they are to be resolved, that is, stop being contradictions by coming apart. Since contradictions often do become resolved, they must have a tendency to become more intense, which is the second reason that intensity is important. Intensification of class struggle or of debate over rival scientific theories are examples of this kind of process, but our interest is the intensification of the contradictions that constitute the Euro crisis in Greece and other heavily indebted countries.
The Greek Contradiction
Before the economic crisis that began in 2007, the Greek economy seemed to be fairly healthy. Beneath the surface, however, a fiscal crisis was brewing. The Greek government had a large public sector, and they also spent heavily on weapons for their conflict with Turkey over Cyprus. The European Union limits how large the government deficits can be for E. U. states, and Greece was over the limit.
In the early 2000s, the Greek government made a deal with U. S. banks (including Goldman Sachs) to borrow money off the books, to hide the deficit from the E. U. Like Bernie Madoff's ponzi scheme, which was exposed by the economic crisis, the Greek government eventually had to come clean in 2010 and ask for a bailout. The critical contradiction here was between the demands of the government's creditors and the financial resources available to pay those debts off. As portions of the debt became due, the government had to borrow again (by selling government bonds) to pay them off. But as the grim financial facts became public, new investors demanded higher interest rates on their loans, increasing the amount the government had to pay. The gap between debts and the means to pay them grew.
The E. U. and I. M. F. Intervene
To try to resolve the crisis the Greek government, egged on by the big E. U. states and the International Monetary Fund, agreed to lend money, but also shifted the debt burden to the working class. They insisted that the Greek government raise taxes and then raise them again. Government workers were laid off and salaries reduced for those who remained. Worker resistance grew stronger, and undermined investor confidence that the government would be able to pay.
As the situation became clearer, it seemed likely that Greece would never be able to pay off the debt unless some of the outstanding balance was written off. This is called giving the investors a "haircut." A 50% haircut was proposed by other E.U. governments. This drove up the interest rate on Greek government debt, further intensifying the Greek financial contradiction.
The Crisis Spreads Beyond Greece
Greece was not the only E. U. government in debt trouble. Ireland, Spain, and Portugal were known to be in some trouble and the example of Greece made their debt seem riskier. Eventually the interest rates rose in Italy as well, and the crisis became general.
The big E. U. states have no choice but to help Greece and the other shaky governments because their big banks have large investments in the debt of Greece and others on the brink. If the Greeks default, German and French banks may fail and need to be bailed out. For Germany in particular it is a case of paying a lot now or a lot more later.
Limits of Capitalist Unity
As clear as it seems that the big countries need to spend what it takes to keep the Greece afloat, there have been numerous disagreements and delays that tend to make the financial contradictions worse. The capacity for unity among capitalist governments is limited, and the prospects of a tighter political unity within the E. U. are remote. Thus it is likely then that the crisis will grow, and the result may be some countries abandoning the Euro or even the failure of the Euro itself.
The Bigger Contradiction
If the crisis grows, it will spread to many other countries, including the U. S. As much damage that this may do, it will certainly be a minor matter compared with other contradictions in the world that are also becoming more intense. The number one example is the growing intensity of the rivalry between the U. S. and China, which may well lead eventually to a new and terrible world war. But that is a subject for another blog.
--January 9, 2012