A new phase in the crisis

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The crisis in Europe has entered a new phase. 2008 saw the onset of the worst economic crisis since the 1930s. In 2010, and especially from 2011, there was a marked upswing in resistance, with a series of mass strikes in Greece, Spain, Portugal, France, Belgium and Britain, and the rise of the indignados in Portugal, Spain and Greece last spring and then the Occupy movement in the autumn.

Now the mood of bitterness and revolt against austerity has received a powerful electoral expression which will have major ideological, political and economic reverberations across the continent.

In France the victory of François Hollande over Nicolas Sarkozy, the hard man of the French right, saw the Socialist Party take the presidency for the first time in 17 years. More importantly, Hollande was elected on a platform that talked about economic growth and not just endless austerity. Hollande promised to renegotiate the fiscal pact that enshrines austerity across the eurozone that Sarkozy and Angela Merkel, the German chancellor, constructed last December in response to deepening economic turmoil in the financial system.

Crumbling centre
Even more dramatically, the Greek elections in early May saw the combined support for the two main parties of austerity, Pasok and New Democracy, crumble from 77 percent just two and half years ago to 32 percent. The biggest beneficiary was the left, especially the radical left coalition, Syriza which saw its vote rocket from 4.6 percent to 16.8 percent, to come a narrow second. Alexis Tsipras, Syriza's leader, stunned Europe's rulers when, after receiving the mandate from the Greek president to try and form a government after New Democracy proved unable to do so, he declared the austerity measures being imposed on Greece "null and void".

But the squeeze on parties that have presided over austerity is not confined to France and Greece.

In Italy local elections in a quarter of the country last month saw Silvio Berlusconi's People of Liberty party take a big hit, as did its former coalition partner in government, the racist Northern League, which is mired in a corruption scandal that has forced the resignation of its founder and leader, Umberto Bossi. The biggest beneficiary was the anti-establishment Five Star Movement of satirist Beppe Grillo which took control of Parma (Grillo described this as the movement's "Stalingrad") and a number of smaller councils.

In Germany regional elections have also seen significant setbacks for Angela Merkel's ruling Christian Democratic Party (CDU). The most important of these is North Rhine Westphalia, the most populous of Germany's 16 Länder with 18 million inhabitants, where the CDU received its worst share of the vote in the state since the Second World War. The Dutch ruling coalition also collapsed in April over disputes about budget cuts.

There are two immediate consequences of this political fracturing at the top of society. One is ideological. Hollande's victory in particular appears to break the stifling consensus that a diet of austerity is all that is on offer. An alternative set of priorities will seem much more possible to millions of people across Europe and even though Hollande is unlikely to deliver on his promises (he remains committed to cutting the French state budget, for example) the result will boost the confidence of those who want to resist austerity.

The other outcome is economic. The rising political cost of imposing deep austerity is pushing Greece close to exiting from the euro. This is creating deep unease about the financial upheavals this could unleash, especially for Italian, Spanish and French banks.

Returning to recession
This underscores the central driver of the erosion in support for the parties of austerity: Europe's economic crisis. Eight out of the 17 eurozone economies have entered, or returned to, recession, including Spain, Italy, the Netherlands, Ireland, Portugal and, of course, Greece. The French economy, the continent's second largest, flat-lined at 0 percent growth in the first three months of this year (the most recent figures).

Only a modest revival of growth in Germany prevented the eurozone as a whole from entering a double-dip recession (and Germany remains the only major eurozone economy to have seen its economic output return to the level it stood at on the eve of the crisis in 2008).

The resulting human misery is staggering. Take one measure: overall unemployment across the eurozone stands at its highest level since 1999 when the currency was launched with 17.4 million out of work. The overall average of 10.9 percent masks much higher levels of around one in four unemployed (and one in two for under 25s) in Spain and Greece. And the crisis shows little signs of abating.

This is because capitalism has two mechanisms for restoring the rate of profit which would restart the motor of capital accumulation once again. The first is to squeeze working class living standards to boost profits.

But this is rarely enough. The second method is the destruction of unprofitable capital allowing the more profitable survivors to prosper at their expense. Yet destruction of capital has barely begun as the state intervened everywhere to prop up collapsing demand and bail out "too big to fail" banks and car companies in 2008-9.

One reflection of this is that many of Europe's corporations have had a good recession.

The Wall Street Journal earlier this year noted, "Corporate cash holdings are now €2 trillion ($2.64 trillion) across the euro zone," adding "Lower corporate tax rates and labour market reforms aimed at reducing the power of trade unions have boosted the income of the corporate sector versus the household sector."

Hoards of cash
Big business, however, is not spending its cash hoard with investment at its lowest level in Europe for 60 years as firms see few outlets for profitable investments. But if corporations are awash with cash, many of Europe's banks have the opposite problem and are effectively insolvent. This is thanks to the huge amount of toxic debt they have on their books especially from over-inflated property bubbles that built up during 2001-8.

The move by the European Central Bank to throw $1.3 trillion of cheap three year loans at the banks at the end of last year staved off a collapse of the European banking system but has far from solved the underlying problem. Harry Wilson, writing in the Daily Telegraph, wasn't far off the mark when he argued, "ECB president Mario Draghi has effectively transformed Europe's toxic banks into zombie banks, addicted to his supply of cheap credit to keep them alive."

A huge amount of unprofitable capital remains on the banks' books, weighing them and the wider economy down. The scale of economic contraction and suffering in some of Europe's southern edge echoes the "shock therapy" Eastern European countries were subject to in the 1990s after the fall of the Soviet Union, but it has largely been without precedent in Western Europe since the Second World War.

This is what is eroding traditional political loyalties and creating rising political polarisation.

Not all of this is to the left. In France the Front National's Marine Le Pen received 6.5 million votes in the presidential elections. In Greece, Golden Dawn, which unlike the besuited "Eurofascists" of the FN is a hard street-fighting fascist organisation, entered parliament for the first time with 21 seats. In the Netherlands the populist Islamophobe, Geert Wilders, is positioning himself to try and benefit from the collapse of the government he provoked.

The gains made by racists and fascists are a warning of the dangers ahead if the left fails to offer a successful challenge to the crisis.

On the left two trends have emerged. Social democracy, where it has been able to revamp itself out of office and articulate at least some opposition to unbridled neoliberalism (having been deeply implicated in promoting neoliberalism when in office) has seen some gains, most notably in France. Hollande, for example, talked about a 75 percent tax on incomes over a million euros.

The German SPD (and Ed Miliband here in Britain) have also benefited to an extent from the same process. This underlines the mistake of writing off social democracy as a finished force.

But alongside this has been the rise of forces to the left of mainstream social democracy as large numbers of people have begun to look for something more radical. Again, the trends have been sharpest in France and Greece. Jean Luc Mélenchon, standing for the Front de Gauche for the French presidency, saw electric rallies that mobilised tens of thousands. As François Sabado of the New Anti-capitalist Party has noted, "During this [Mélenchon's] campaign a left reformist political force of mass influence has been reconstructed."

Remobilisation
Interestingly, Sabado points to one of the reasons behind this, identifying a "remobilisation of the forces of the Communist parties (also seen in Portugal, Spain and Greece) resting on the fact that they have not been in government for some years and that they have preserved positions in the apparatuses of the institutions or trade union organisations".

Certainly in Greece, as Giorgos Pittas explains in our interview with him in this issue of Socialist Review, the core component of Syriza is based on a section of the Greek Communist Party KKE) that split from the pro-USSR wing (though Syriza lacks the important union roots of the KKE).

But this trend goes even wider than this. For example, the Dutch Socialist Party, which is to the left of the Labour Party, is also currently set to make significant gains from the government, at points even leading in the polls.

The radicalisation generated by the crisis, and resistance to it, is generally benefiting left reformist forces rather than the anti-capitalist, revolutionary left. This should be no surprise. As people break from their traditional loyalty, built up in some cases over decades, to mainstream social democrats, they are more likely to turn first to other more radical versions of reformism where these seem a credible and articulate opposition to the onslaughts on workers' living standards in the language the social democrats used to deploy.

Change within the framework of the system still seems easier, and more plausible to many, than the message of revolutionaries that workers need to rely on their own resistance and ultimately take control of society into their own hands to solve the crisis.

Yet the polarisation reflected in the elections points to deepening class polarisation across Europe. Major battles lie ahead that can in turn propel the process of radicalisation further left, especially where the solutions offered by the various versions of reform rather than revolution are put to the test.

Revolutionaries need to maintain their political independence while patiently relating to those giving their votes - and hopes - to a Mélenchon or Syriza at the moment, while all the time attempting to give a lead in the fightback against job losses, wage cuts or the Nazis.