Saturday, May 31, 2014

Austericide and European politics

"Pero un cambio no es sólo cambiar la cara, tampoco abrir un debate y luego no hacer nada. Un cambio significa romper con lo actual y reemplazarlo por algo nuevo." ("But a change is not only to change the face, nor is it to open a debate and later do nothing. A change signifies breaking with the current [approach] and replacing it with something new.") - Carlos Reinhards, El navío de cañones libertarios Foro Ético 30.05.2014

The economist Heiner Flassbeck discusses the current eurozone strategy that is based on internal devaluation in Europa nach der historischen Wahl: Das Verfahren ist alles, der Inhalt der Politik ist nichts flassbeck-economics 28.05.2014. This is a term associated with currency zones like that of the euro and with the fact that one unit of the currency zone (a country or a state) can't devalue its currency to make adjustments for changes in productivity relative to the other countries in the same currency zone.

A currency zone like the United States has a system of fund transfers (unemployment insurance, child support payments, Social Security, subsidies, nationally-funded contracts and investment project) that compensate for differential rates of productivity change in a currency zone.

But unlike the United States, the eurozone is not a transfer union that provide that kind of automatic economic stabilizers across the entire currency zone. There is not, for instance, a eurozone-wide system of unemployment insurance that automatically produces a transfer of funds from more prosperous areas to those that are being hit by economic hard times.

In the absence of separate national currencies and without a transfer union, the only immediate way for a country in the eurozone to adjust its competitiveness to match that of more competitive countries is through internal devaluation. Which comes down in practice right now to pushing down wages and salaries, increasing the proportion of part-time and temporary workers, making it easier to lay workers off, reducing employers' costs for benefits.

In other words, the project of improving national competitiveness in the eurozone right now is about reducing real income for most workers. This is a program that has been playing out for years, especially in the eurozone periphery countries of Cyprus, Greece, Ireland, Italy, Portugal and Spain.

Competitiveness is labor costs is not just a matter of wage costs but also of productivity. But part of the neoliberal but also of productivity. But part of the neoliberal ideology that currently has a deathlock on the conservative, social-democratic and liberal parties in the eurozone is focusing all but exclusively on reducing real income.

Flassbeck sees last weekend's European Parliament elections as a display of some of the most negative political consequences of German Chancellor Angela Merkel's Herbert Hoover/Heinrich Brüning austerity policies:

... würde es für Frankreich bis etwa zum Jahr 2030 und für Italien noch ca. 5 Jahre länger dauern, bis sich die Wettbewerbsfähigkeit in beiden Ländern an die deutsche angenähert hat. Das heißt für diese beiden Länder, keine Perspektive auf eine Besserung in absehbarer Zeit zu haben, bedeutet aber auch fünfzehn und mehr Jahre Stagnation und Deflationstendenz in ganz Europa. Über die politischen Folgen eines solchen Szenarios muss man seit Sonntag nicht mehr spekulieren.

[... it would take France until around the year 2030 and Italy even five years or so longer, until the competitiveness in both countries had approached that of Germany. That means for both countries no perspective for an improvement in any foreseeable future, but means rather 15 and more years of stagnation and deflation tendencies in all of Europe. About the political consequence of such a scenario, since Sunday we no longer have to speculate.]
Flassbeck is referring in particular to the growth of far-right parties who exploit nationalist and xenophobic slogans to capitalize on economic problems and vague feelings of dissatisfaction with the euro and the EU.

No political developments are inevitable. As much as I criticize Merkel's truly destructive economic policies, she has managed to keep the eurozone together through five years of destructive austerity policies, and even persuaded her eurozone partners to sign on to a the the Fiscal Suicide Compact 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. (The Fiscal Suicide Compact is formally known as the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (2012).

Another consequence that we see in motion is a crisis for the social-democratic parties, which have been the main center-left parties in Europe for decades. The Greek Social Democratic Party PASOK damaged itself so badly by supporting the German austerity program that it formally went out of existence, refounding itself as the Ελιά–Δημοκρατική Παράταξη (Olive Tree–Democratic Alignment), or Ελιά/Elia for short. They considered themselves lucky in the EP elections last weekend to lose only one-third of the votes that dying PASOK received in the previous national elections. The ruling Socialist Party saw the far-right National Front party take first place, and the Socialists came in third after the conservative UMP.

As Paul Krugman wrote back in 2012 (Europe’s Austerity Madness New York Times 09/27/2012):

Suddenly, Spain and Greece are being racked by strikes and huge demonstrations. The public in these countries is, in effect, saying that it has reached its limit: With unemployment at Great Depression levels and with erstwhile middle-class workers reduced to picking through garbage in search of food, austerity has already gone too far. ...

Much commentary suggests that the citizens of Spain and Greece are just delaying the inevitable, protesting against sacrifices that must, in fact, be made. But the truth is that the protesters are right. More austerity serves no useful purpose; the truly irrational players here are the allegedly serious politicians and officials demanding ever more pain. [my emphasis]
Flassbeck complains about the superficiality of the coverage, focusing particularly on the German press, which seems to be following the toxic trends in the American media, though with a lag of a decade or more. There has been considerable fluttering about the "horse-race" aspects, particularly the selection of the new EU Commission President.

This Spiegel International opinion piece by Nikolaus Blome can perhaps serve as an example of this. The words, "austerity," "unemployment," "depression" and "deflation" do not appear in it. Blome does comment on the horse-race, though, of course:

Jean-Claude Juncker campaigned on behalf of the conservative Christian Democrats and Martin Schulz for the center-left Social Democrats. Both candidates took on the task of creating a truly European election to the point of exhaustion. Throughout, they had to tackle a number of small and large adversities that at times put them under great strain. ...

The two leading candidates, with their personalization of the election, have created some facts that will be hard to change. It is very hard to imagine that the leaders of the EU member states would be able to prevent election victor Jean-Claude Juncker from becoming the next president of the European Commission if a majority in parliament backs him. The traditional "grand coalition" in the European Parliament between the conservative Christian Democrats (the European People's Party) and the center-left Social Democrats (Socialists and Democrats) will this time be led by the conservatives and is likely to achieve that needed majority. What that ultimately means is that leaders like Germany's Angela Merkel, who has said the winner wouldn't automatically become the EU Commission president, will have to yield to the wishes of voters. Although the leaders will still be free to choose other important EU posts, including the other members of the Commission, a very important one has likely now been turned over to the discretion of voters. That's how things should be and it is a positive development.
The lady Angela von Merkel has now magnanimously agreed to respect the voters' choices enough to say that she will back Juncker as EU President. I mean, since he was the lead candidate for the party that came in first and all. And since she was influential in selecting him for that role anyway. And since he supports her ruinous austerity policies. As does Martin Shultz, whose party is the junior partner of Merkel's CDU in the current German government.

Merkel's Finance Minister Wolfgang Schäuble, in an interview with Blome and Ralf Neukirch, German Finance Minister Schäuble: 'Europe Needs More Self-Confidence' 05/27/2014 says that the whiny Europeans just need to suck it up, keep on pursuing austerity and give more power to Angie to dictate other countries policies:

SPIEGEL: Are you not overvaluing Europe's appeal? The fact that populist, EU-skeptical parties are on the rise shows that the EU has lost its power of persuasion internally as well.

Schäuble: Usually, it is as Hölderlin once said: "Where danger threatens, salvation also grows." Perhaps the development will increase the decisiveness among the large majority of democratic powers to push Europe forward.

SPIEGEL: That sounds very abstract. What do you mean specifically?

Schäuble: We have to make Europe more efficient. I know that changing the EU treaties looks difficult from today's perspective. But most experts also didn't believe that we would come to agreement on the establishment of a banking union. And then, in the end, we found a solution that was acceptable to all.

SPIEGEL: You have proposed the introduction of a budget commissioner with the power to reject national budgets. Does that not foster exactly the kind of EU-skepticism that you are interested in combating?

Schäuble: We have European rules, but we don't have effective instruments for enforcing them. We realized that when then-German Chancellor Gerhard Schröder and his French counterpart President Jacques Chirac agreed to turn a blind eye to the deficit criteria. That is how you destroy trust -- also among the electorate.[my emphasis]
That's just awesome! The reason for all the problems is that Europeans weren't pursuing enough austerity early enough!

SPIEGEL: You want to combat EU-skepticism by giving Europe more power. That sounds like a paradox.

Schäuble: The people aren't against Europe. They simply don't understand sufficiently what Europe actually does. It has to be explained. Perhaps foreign crises will help boost enthusiasm for Europe once again. The acceptance of the euro in Germany continually climbed during the euro crisis.
Earlier in the interview, they had been talking about the Ukraine issue. This is one indication that Merkel's government sees that crisis as, in part, a good way to rally the European public behind German domination.

Greek cartoonists Yannis Ioannou seems to be less inclined to take such a view, in this depiction of Merkel and Schäuble managing Greece's economy:


And sometimes it's worth paying attention to politicians' weasel words: "The acceptance of the euro in Germany continually climbed during the euro crisis." Not surprising. The German economy, despite its very real problems, benefited from the currency zone relative to the periphery countries during the last five years. I haven't checked polls to verify his assertion. But it's interesting in this connection that he generalizes from Germans improving their opinion of the euro during the euro crisis to the liklihood that other European publics will improve their opinion of austericide policies and of German domination during a European crisis. It's a sign of how nationalistically focused Schäuble is, as many other German politicians including Merkel appear to be.

It sounds like delusional thinking to me.

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