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Drowning in debt: On neoliberal austerity in Serbia and how to fight it

20130808_172447Serbia is officially bankrupt. We cannot, so Aleksandar Vučić,  First Deputy Prime Minister of Serbia, claims, keep spending more than we earn “or we will swallow ourselves whole”. The fault, so goes the story, lies in the economic policy pursued over the past 13 years since the fall of the Milošević regime by all previous governments. This is the justification for the austerity and reform measures finally announced on 8th October. In fact, we will argue, the coming wave of austerity is not a break with but represents an intensification of the neo-liberal economic regime. Not only will it not solve the problem of the debt economy, it will merely intensify the crisis.

The present official line, like the package of austerity measures itself[i], comes direct from the IMF. It is the typical neoliberal medicine of opening up to foreign capital, privatisation of state industries and public services, liberalisation of labour markets, and tight control over monetary policy.

The idea that we are being offered a new beginning in Serbia is nothing short of ridiculous. From 2000, neoliberalism has proclaimed that only the opening of markets to Foreign Direct Investment through privatisation of state assets and the de-regulation of labour markets, can deliver investment, productivity and growth. In fact foreign capital had to be paid through the nose to invest in Serbia through high interest rates and an overvalued currency. In turn foreign credits subsidised the import and credit boom of the 2000s.  But the same monetary regime that attracted foreign credits and privatisation receipts was also responsible for destroying industry, causing mass unemployment and rising absolute poverty. Expensive money acted as a disincentive to investment in the real economy, while overvalued currencies made exports uncompetitive.[ii] The resulting budget and trade deficits exacerbated external debt. So dependant had Serbia become on borrowing that when the tap of foreign lending ran dry with the bankruptcy of Lehman Brothers in September 2008 the economy collapsed and has not recovered since.

With the onset of crisis, all states were forced to intervene to prevent the global financial crisis triggering a meltdown of the banking system and the disintegration of the global economy. As trillions of dollars of free money were handed over to the bankers, the IMF rushed to protect the financial institutions of the rich North. Debt economies like Serbia were placed under “Standby Agreements” and extended credit facilities to prevent them bankrupting on loans to the foreign banks. As a result Serbian public debt exploded, virtually doubling from 33.4% of GDP in 2008 to an estimated 61.8% in 2013. The reward for colluding with the IMF to rescue a technically bankrupt international banking system was that our debt crisis, like that of peripheral Europe, became terminal.

When the state bailout of the banks created a gargantuan international debt crisis, the IMF, together with the EU, began to call for austerity measures. In order to justify what was obviously a blatant attempt to make the working class pay for the debts of the banks, the IMF now argued that the crisis had really been caused by too much state spending. The great opening up to the anarchy of the market which had caused the crisis now became the solution. We have been hearing this same tune in Serbia for some time, only now with greater insistency since we are on the verge of default.

Austerity already began with a public sector wage freeze in 2009–10 which reduced the wage bill by 0.3 percent of GDP over 2009–11. A new round of neo-liberal reforms like central bank independence – that is, independence of neo-liberal monetary policies from democratic interference –  and the beginning of pension reform also date from this period. Of course, these reforms were not sufficiently “business friendly” to satisfy the IMF, and it is true wages and pensions were allowed to rise significantly in 2011-12, before being capped from 2012-13.[iii]

But this is less to do with electoral “populism” or “clientalism”, as neo-liberal hawks claim, than with the contradictions of austerity, contradictions that all capitalist states face.  While austerity with one hand squeezed the working class to repay debt, with the other it increased debt by reducing consumption and thus economic growth. In turn stagnant growth became a double dip recession and exacerbated the debt crisis, particularly in the Eurozone and the Balkans. The root of the contradiction, from a Marxist perspective, is that same measures that ward off the immediate collapse of the financial system are also those that block the liquidation of inefficient capitals, and thereby the reduction of the costs of production and investment and the recovery of the rate of profit. What do we mean by this?

Marx argued that the process of competitive production of commodities on the market for profit forced capitals to invest in technology in order to realise extra profits through cheaper prices at the expense of their rivals. However the process of competition also forces other capitals to respond in similar fashion by replacing labour, the source of all value, with technology, thus leading to a structural tendency towards declining in profit rates and economic crisis. The present economic crisis has its roots in the long term decline in profit rates in the advanced capitalist countries. In response, huge amounts of unused capital were captured by financial markets, resulting in international booms based on financial speculation. From the perspective of value theory, the boom was mainly based on “fictitious profits”, that is, profits based not on investment in the productive exploitation of labour power but speculative claims on future labour values as expressed in credit and debt. The crash was an expression of the chasm between the underlying rate of profit and money claims on inflated fictitious values (initially in US mortgage-based derivates).

Marx argued that the crisis, by destroying weaker capitals, reduces the costs of production and investment, and thus increases the rate of profit, enabling a new cycle of accumulation to take place. But as capitals have become ever larger, expanding across the globe, the price of failure is catastrophic slump. This is why today the response of the capitalists is to intervene to prevent the collapse of the global financial system. A long depression is preferable to allowing markets “to clear”. For this reason austerity becomes necessary in order compel governments, companies and consumers to repay their debts to the banks. It also follows from the need to drive down costs on behalf of capital, particularly wage costs, but also taxation and interest costs, and the need to weaken the labour movement so that profits can be raised. But this service to capital cannot and has not succeeded in restoring the rate of profit because the major effort of austerity is directed to the realisation of fictitious values, that is, repaying banking debts based on future claims on value, which blocks the clearing out of unprofitable capitals and thus a new investment cycle. This is why Serbia, like the major capitalist states, has oscillated between depression and financial crisis, and thus bouts of austerity and rounds of public borrowing to prevent recession from turning into a new financial crash.

On this basis we claim that the reform measures will not solve the debt crisis. If taxes on public sector higher earners, increases in VAT (value added tax) on basic items of consumption, and cuts to public sector subsidies all increase government revenues, they also reduce economic growth. Hence they intensify the debt burden. In turn the fiscal crisis leads to capital flight. Capital flight from the financial sector has already begun, and in the case of long-term debt nearly half a billion euros have flooded out since the beginning of the year. The lending activity of the banks has fallen to zero and its stagnation will have serious consequences for economic activity. Furthermore, only next year we will have to repay 1.14 billion euros in interest on state foreign debts, while in the medium term we are faced with the need to refinance very expensive and substantial loans.

Hence austerity will not only not meet the fiscal targets set by the government, it cannot by definition change the fact that Serbia is bankrupt. The real function of austerity and pro-business reforms (freeing the hands of foreign investors to hire and fire at will, while muzzling the unions by limiting the right to strike) is to attract foreign loans by giving the impression that the debt problem is under control in our haven for foreign investors. The aim is to repay existing expensive loans by taking out new loans. In the best case scenario this means getting cheap loans from our new-found “friends” in the UAE in exchange for handing over the arms industry and sectors of agriculture (a repeat of the handover of the energy industry to Russia in exchange for its veto on Kosovan independence in the UN and occasional loans). In the worst case it means going back to the IMF at much higher interest rates. But in both cases debt is being piled up to repay existing debt. And the political economy of debt slavery, that is, the defence of the value of money (debt) at the expense of the destruction of industry, will continue, meaning that a default will come sooner or later whatever happens.

In the meantime what we can be sure of is that we have entered a new period of neo-liberal assault on the working class. Pension reforms have already been announced that raise the pension age of women to 63 and penalise early retirement. Public sector wage “reform” is the medium term goal. But we are just at beginning and the government is proceeding slowly, playing populist tricks, like arresting a handful of local tycoons for financial malpractice or taxing higher earners in the public sector, in order to defuse resistance, to create a consensus for more radical neoliberal measures around the idea that “we are all in the same boat”.

In response, left wing activists need to call for a broad front of struggle against austerity, uniting trade unionists, feminist collectives, student activists, pensioner and peasant associations. The very generalisation of the offensive creates the basis for broad but radical unity: limits on the right to strike, on employment rights, on pensions, and attacks on the living standards of the working class as a whole through the VAT hike. In order to be successful such a campaign needs to confront the now widespread climate of fear and uncertainty, the growing belief that if particular reforms are unfair then they are unavoidable since “we cannot spend money we don’t have”. In other words we cannot simply make empty calls for resistance. We must also offer a convincing political alternative to the reigning neoliberal ideology. Hence we need to call for a repudiation of the debt and the nationalisation of the banks and industry as the basis for investing in employment, welfare provision and living standards.

It is vital that we make a serious start on drawing different groups of activists together since from now on the crisis will only accelerate, and government borrowing may not be enough to prevent a default on the debt next year. If we do not popularise the politics of a workers’ alternative we will then find ourselves in a Greek situation, where we face a catastrophic collapse of living standards, the end of democracy and the rise of the fascists – but without the strong popular forces and the left political alternative, Syriza, that exist in Greece. Hence, there is a special role for the radical left in a broad coalition against austerity: it is to argue that the capitalist crisis can only be resolved through a socialist alternative, and the efficacy of the struggle for that alternative depends on the creation of a workers’ party that will unite activists from the different sectors of struggle against the neoliberal offensive.








[i] See the press release of the IMF mission to Serbia whose meetings with government officials directly preceded the announcement of austerity measures: ‘Statement at the Conclusion of an IMF Staff Visit to Serbia’, Press Release No. 13/395, October 8, 2013:

[ii] See Andreja Živković, ‘From the market…to the market: The debt economy after Yugoslavia, in Srecko Horvat and Igor Stiks (eds.), The Rebel Peninsula: Radical Politics after Yugoslavia, Verso, forthcoming 2014.

[iii] See ‘Republic of Serbia: 2013 Article IV Consultation’, IMF Country Report No. 13/206, 15 July 2013, p4:

By Andreja Zivkovic

Andreja Živković is a sociologist and member of Marx21 in Serbia. He is the author and editor of ‘The Balkan Socialist Tradition’ (special issue, Revolutionary History Journal, 2003) and Revolution in the Making of the Modern World (Routledge 2007); and is contributing a chapter on the political economy of the debt economy in ex- and post-Yugoslavia to Srecko Horvat and Igor Stiks (eds.), Welcome to the desert of post-socialism: radical politics in former Yugoslavia, Verso, 2015.

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