Thursday, December 05, 2013

Things necessary to save the euro that Merkel and the SPD will not do

Joe Stiglitz has a new piece, An Agenda to Save the Euro Project Syndicate 12/04/2013, in which he walks the basic steps that would be needed to save the euro in its current form.

He describes the current situation this way:

Some, noting that the eurozone’s double-dip recession has ended, conclude that the austerity medicine has worked. But try telling that to those in countries that are still in depression, with per capita GDP still below pre-2008 levels, unemployment rates above 20%, and youth unemployment at more than 50%. At the current pace of "recovery," no return to normality can be expected until well into the next decade.
Think about that. A protracted depression that began in 2008 may not be overcome until, say, 2025.

Thanks to Angela Merkel's disastrous austerity policies. Heckuva job, Angie, heckuva job!

The necessary adjustments Stiglitz highlights include a banking union, common debt capabilities "such as Eurobonds," empowering the ECB to be a fully-functioning central bank for the eurozone that includes economic growth as one its responsibilities, and substituting growth policies for austerity, including "industrial policies to enable the laggard countries to catch up."

But all of these are things that Angie and her new SPD governmental partners-to-be oppose. The Fiscal (Suicide) Pact effectively bans counter-cyclical stimulative policies to combat ordinary recessions, much less to raise the eurozone out of its current depression. The ECB is dominated by Germany's anti-inflation bias, although ECB chief Mario Draghi has shown flexibility. His whatever-it-takes promise in 2012 that produced a long and still-enduring pause in speculation against eurozone bonds was a maneuver to sidestep the limits on the ECB's powers, allowing it to functionally play the role of a buyer of last resort for national bonds, though technically it's not allowed to.

ECB holds main interest rate, sees prolonged lack of inflation Euronews 12/05/2013:

Stiglitz notes of industrial policies to promote development, "this implies revising current strictures, which bar such policies as unacceptable interventions in free markets."

Merkel has agreed in theory to a banking union but has drug her feet to minimize and postpone it, so far. She's dead set against eurobonds.

And the coalition agreement Merkel has made with the SPD - which still has to be approved by the SPD base - backs continuation of Merkel's policies. Jens Berger writes in Gute Nacht Europa – die Große Koalition und ihre unzureichenden Pläne zur Beendigung der Eurokrise NachDenkSeiten 04.12.2013, "Glaubt das deutsche politische Establishment tatsächlich, das nur die Anderen Schuld haben, wenn die EU allen Ecken brennt." ("The German political Establishment really believes that others are to blame if the EU is burning in all corners.")

Stiglitz explains:

Much of the euro’s design reflects the neoliberal economic doctrines that prevailed when the single currency was conceived. It was thought that keeping inflation low was necessary and almost sufficient for growth and stability; that making central banks independent was the only way to ensure confidence in the monetary system; that low debt and deficits would ensure economic convergence among member countries; and that a single market, with money and people flowing freely, would ensure efficiency and stability.

Each of these doctrines has proved to be wrong.
And he is right in his observation, "The euro was supposed to bring growth, prosperity, and a sense of unity to Europe. Instead, it has brought stagnation, instability, and divisiveness."

Berger describes the agreed-upon CDU/CSU/SPD coalition agreement's policies on Europe as, "Immer mehr vom Gleichen und alles wird gut." ("Even more of the same and everything will turn out fine.")

He sensibly predicts that extremely likely outcome of such a course: "Wenn das die Antwort auf die noch lange nicht beendete Große Krise in Europa ist, dann gute Nacht Europa." ("If that is the answer to the Great Crisis that is a long way from over, then good night, Europe.")

And the fate of the SPD itself doesn't look good. As Berger asks, "Wenn Europa brennt, wird die SPD mit untergehen. Hat sie dieses Szenario bedacht?" ("If Europe burns down, the SPD will go down with it. Did they take this scenario into account?")

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