This is a good brief description of what the eurozone economy needs, expressed in terms of price levels.
It's basic macroeconomics, actually, as Paul Krugman and Münchau and others who actually pay attention to macroeconomics have been saying for a while. A serious and constructive economic policy would create stronger growth in Germany, and somewhat higher inflation. Increased demand by German consumers would help greatly to boost the exports of the southern eurozone economies, which the neoliberal "reforms" demanded by the EU are allegedly designed to do. And growing economies would reduce the relative debt burden on Cyprus, Greece, Ireland, Italy, Greece, Portugal and Spain.
That would buy some time for the real changes - the word "reform" in this context is ruined for the moment! - needed to make the euro a workable currency for the long run: bank union, an ECB fully empowered to backstop eurozone debt, eurobonds, generally common budget policies. And even pursuing the kind of basic macroeconomic policies to solve the current depression would probably require doing away with the Fiscal Suicide Pact that limits individual countries' debts and deficits in a way that effective requires a pro-cyclical economic policy during recessions and depressions, exactly the opposite of what is needed.
But what the eurozone has is German Chancellor Angela Merkel's Herbert Hoover/Heinrich Brüning austerity policies.
Jamie Galbraith and Yanis Varoufakis discuss the consequences of Merkel-sterity and its alternatives in this YouTube audio of a recent presentation they did, They create a desert and call it peace - Galbraith & Varoufakis:
Varoufakis provides a brief guide in his blog post, Austerity as a destabilising assault on the New Deal institutions: A joint presentation by J.K. Galbraith & Y. Varoufakis 02/27/2014.
Münchau thinks that public and elite opinion in Germany is alarmingly indifferent to the pressing danger of deflation in the eurzone. He explains why deflation and depression go together:
Denn wenn die Deflation eintritt, passieren zwei Dinge: Der Wert der griechischen, spanischen und italienischen Schulden würde steigen und die Länder in den Staatsbankrott zwingen. Und die ganze Wirtschaft im Euro-Raum würde in eine Depression fallen. Wer damit rechnet, dass die Preise fallen, der kauft sich den Kühlschrank erst im nächsten Jahr, weil er dann billiger sein dürfte. Im nächsten Jahr kauft er ihn dann aber auch nicht, denn schließlich könnte er im Jahr darauf noch mal billiger werden.Basic macroeconomics.
[Then if deflation enters the picture, two things will happen: The value of the Greek, Spanish and Italian debts will rise and drive the countries into national bankruptcy. And the whole economy in the eurozone would fall into a depression. Whoever think that because prices are falling, he will wait until next year to buy a new refrigerator, because it should be cheaper then. And the next year, he will not buy, because in the end he could buy it the following year even more cheaply.]
He concludes, "Auch wenn die Deutschen es nicht wissen und erst recht nicht zugeben: Unsere Inflationserwartungen sind gefallen. Und genau das ist das Problem." ("Even if the Germans don't want to know it and even less admit it: our inflation expectations have fallen. And exactly that is the problem.")
Heckuva job, Angie, heckuva job!
Varoufakis updates us on the state of economic affairs in Greece in What you should know about Greece’s present state of affairs – an update 03/01/2014:
It takes a passionate disregard for the truth to suggest that Greece is recovering.” That was my verdict last December upon being asked to comment on Greece’s rumoured recovery. Almost three months later, it is time for an update. The gist of today’s update is depressingly simple: Still, no sign of Greek-covery whatsoever. Indeed, every single indicator (including the ones that are presented as evidence of light at the tunnel’s end) points in a sadly negative direction ...After four years of Angie-nomics, here's how Greece is doing:
If we look at nominal GDP, a far more poignant statistic than real GDP in times of recession,[i] we shall be horrified to discover that the recession picked up speed in 2013, compared to the abysmal years 2012, 2011 and 2010. Indeed, as you can see from the figures below, whereas nominal GDP fell from 2011 to 2012 by a modest 1.1%, between 2012 and 2013 it shrank by a walloping 14%! In this sense, the Greek economy’s performance in 2013 was even worse than that of 2010 and 2011 – the first two years after Greece’s implosion.Neoliberalism has had at least as much of a free run in altering economic policy as it had in Chile and Argentina under their last military dictatorships. Here's how that's coming along:
What about employment? Any good news there? Did the huge reduction in minimum wages perform its magic, causing employers to take on a few more workers instead of investing in machinery? Is labour-capital substitution favouring labour over capital goods given the latter’s ‘cheapening’? As the following figure demonstrates, employment is continuing its downward slide, confirming that wage cuts in the midst of a multi-dimensional, cruel recession is bound to fail to instill the ‘confidence fairy’ in employers’ hearts and minds. The lower the minimum wages the more pessimistic Greek employers became that they can find paying customers for the wares that freshly hired employees might produce. [my emphasis]Greece is learning the lessons of deflation already:
2013 was a disastrous year for the privatisation program. The spectacular failure to sell a public monopoly to Gazprom (which refused to buy at almost any price, citing the deflationary forces raging in the Greek economy as the reason for its withdrawal), left the government with a single success story: the sale of the state lottery OPAP to a shadowy consortium at a low, low price and under conditions that will prove, undoubtedly, to be detrimental to the government’s long term benefits.Heckuva job, Angie, heckuva job!
Tags: angela merkel, austerity economics, deflation, eu, euro, greece
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