Thursday, July 11, 2013

Why Europe needs less "Angela Merkel" and less of the "vicious downward spiral" she has brought so many of them

"If leadership in the euro crisis is wrongly defined as influence on policies, Germany has been a very powerful, if perverse leader. Such leadership the euro area can do without." - Sony Kapoor, Germany Must Embrace its Crown of Thorns Re-Define 07/10/2013.

He rightly criticizes the German political elite and media for the poor ways they've framed the euro crisis: "The absence of diversity and depth in the German debate on the euro crisis is striking. The inaccurate 'lazy southerner' narrative dominates public and private discussions, and the need for austerity is taken as a given, no matter what the evidence." He doesn't call it cheap nationalism, though that's what it is. But he's right in saying that the German elite "peddles country level solutions to what is a systemic crisis."

But while criticizing the German elite's blind spots, he put it, "'Fuzzy' matters, such as the danger that sharp fiscal adjustment poses to social cohesion and political stability in crisis countries, get short shrift." How are unemployment, the destruction of large portions of the target countries' productive capabilities, the devastation of their public services, the selling off of their public property at fire-sale prices, the wrecking of their retirement programs, and the slamming down of their incomes "fuzzy" matters?

Greeks unemployment hits new high - economy Euronews 07/11/2013:

The suggestion that they so appear to the German public may be spot on. But they are anything but "fuzzy" issues to the victims of German Chancellor Angela "Frau Fritz" Merkel's austerity programs.1

Anne Seith gives some examples of the results of Merkel's work in 'A Toxic System': Why Austerity Still Isn't Working in Greece Spiegel International, though she also proceeds from the Merkelist assumption that the brutal "neoliberal" reforms are somehow desirable:

Greece's euro partners have already pledged more than €230 billion in aid, and government spending has also been slashed by dozens of billions. Representatives of Greek business are now convinced that the country cannot survive without yet another debt haircut.

The subject is politically sensitive, especially in Germany, because this time a debt haircut would also affect public creditors, which already hold 80 percent of Greek sovereign debt. In other words, a large share of German assistance loans would be irretrievably lost.

German Chancellor Angela Merkel is still strongly opposed to a debt haircut, fearing that Greece's enthusiasm over reforms will vanish once financial pressure subsides. The country needs more than money alone to get back on its feet. Even the IMF is critical of the devastating effects of austerity programs on the country's economy. But that is only half the truth. The fact is that while Greece has drastically cut spending, efforts at structural reform are stagnating. This also hampers economic success.
But at least she spells out some of what "reform" Merkel-style actually means to Greeks:

Unit labor costs, seen as an indicator of a country's competitiveness, had declined by 10 percent compared to 2007, thanks to the easing of labor market regulations. Major corporations like Unilever, Philip Morris and Hewlett-Packard were announcing substantial investment plans.

During a visit to Beijing, Samaras overconfidently touted what he called his "Greek success story."

But what outsiders see as successful reforms come at the expense of ordinary Greeks. A few hundred meters from the office of EU representative Carvounis, a retiree shot himself to death last year because of financial problems. Surveys show that household income has plunged by almost 40 percent since the crisis began. Some 64 percent of young people are unemployed, and the healthcare system, after several rounds of austerity cuts, is on the verge of collapse. In many public hospitals, patients have to pay for their own bandages and swabs, while relatives are called upon to care for them, because of a shortage of nurses. [my emphasis]
Portugal's political turmoil puts bailout at risk - economy Euronews 07/11/2013

Seith is one of the co-authors of this article by Martin Hesse et al, Downward Spiral: Southern Europe Remains Stuck in Crisis 07/03/2013 that provides a broader picture of the distress in southern Europe. After four years and counting of austerity programs supposedly designed to reduce the debt burden of the targeted countries:

Sovereign debt is rising rapidly, not just in Spain, but also in Greece, Italy and Portugal, despite austerity policies and impressive reform efforts. The countries have significantly reduced spending in response to pressure from the so-called troika, consisting of the European Commission, the ECB and the International Monetary Fund (IMF). But the recession has led to a concurrent decline in revenues. In addition, devastatingly high unemployment has led to higher government spending.

It has created a vicious downward spiral.
And Merkel's "vicious downward spiral" continues, at her own insistence:

... the German government is determined to stay the current course. "The weak economic situation in the euro zone is no reason to deviate from the dual strategy of ongoing fiscal consolidation combined with structural reforms," reads an internal document from the German Finance Ministry, which argues that the present strategy has been successful. ...

Jobs have become rare in Italy, especially for young people. Nationwide, some 40.5 percent of Italians under 25 are unemployed, while in the south the number jumps to 50 percent. Those who do have jobs usually have only limited contracts.

The situation is even worse in neighboring Southern European countries. Unemployment in the under-25 age group tops 50 percent in Spain and Greece and is at 42.5 percent in Portugal. While politicians in Germany somewhat dismissively explain away these devastating numbers, arguing that the economies on Europe's southern edge are just not competitive and need to become cheaper, the southern countries disagree.
From the narrow nationalist view of Germany's interests, "the present strategy" has "been successful." Germany's export-oriented economy is profiting from the advantages of the euro, which is cheap in comparison to what a separate German currency would be. If the euro disappears, Germany's export prices would increase by nearly a third and hammer the supposedly super-efficient model German economy. Germany would also be required to recapitalize the Bundesbank for losses on the Target 2 euro clearing mechanism in which the Bundesbank is effectively loaning hundreds of millions of euros to other eurozone central banks.

Merkel and the other eurozone leaders failed to make good use of the year's time without acute crises breaking out that the European Central Bank (ECB) bought them a year ago with their plan to forestall speculation on sovereign debt. Kapoor writes:

... the fear of inflation and moral hazard remain the biggest German bugbears, leading it to veto sensible proposals such as a banking licence for the European Stability Mechanism (ESM) and the debt redemption fund proposed by its own council of economic advisers.

Politically, Germany has allowed parochial domestic considerations such as Lander elections to repeatedly delay and water-down steps needed to tackle the crisis. It has gained notoriety, albeit a tad unfairly, for an obdurate approach to the euro crisis as other countries and EU institutions anticipate German positions and increasingly self-censor. Even as Germany has trumpeted the need for a more powerful EC, it has played no small role in bypassing, ignoring and neutering it. ...

Parochialism and procrastination are the exact antithesis of political leadership, particularly given the interconnected and urgent nature of euro area problems. Any solution must necessarily be systemic in nature and here Germany has not proposed a credible way forward.

Germany's failure to provide economic leadership is equally stark. It rejects its own responsibility in contributing to the adjustment process, despite being the largest creditor and surplus country in the euro area, choosing, instead, to impose most of the burden of adjustment on crisis-ridden debtor economies.

On structural reforms, too, it has failed to lead by example. It is resting on its laurels and has implemented few of the necessary structural reforms of its own in five years, even as it preaches their virtues.
Tags: , , , , ,

No comments: