Sunday, November 23, 2014

The EU, Angie-nomics and Ukraine

Paolo Pini talks about the building resistance from the current government of France against Angela Merkel's ruinous austerity program and her nationalistic course in eurozone matters (Italy Calls For A Bretton Woods For The Eurozone - a somewhat misleading title - Social Europe Journal 20.11.2014):

French President Francois Hollande has announced that he will ignore the European budget constraints; his intention is to defer the return of the deficit/GDP ratio to below 3% for two years. This could signal the end of Fiscal Compact austerity.

The French decision only highlights the critical state of the overall system (and the widespread violation of the rules) that has existed for some time. There are many countries in the EU whose deficit/GDP ratio is greater than 3% (in addition to France, also Spain, Portugal, Greece, Croatia, Slovenia and even virtuous Poland), while Germany has been persistently violating the upper limit to the trade surplus. [my emphasis]
It was foolish in the extreme for the eurozone countries to agree with Merkel's Fiscal (Suicide) Pact, which writes Herbert Hoover/Heinrich Brüning economics into the Constitutions of the countries that entered into the treaty.

That was the treaty that Hollande was elected President in 2012 promising he would insist on renegotiating it. On coming to office, he almost instantly capitulated to Merkel and approve the Fiscal Suicide Pact. His obsequiousness to Merkel and her reactionary economic policies were a huge reason for his subsequent rapid slide in popularity, unprecedented for French Presidents.

Despite the title of Pini's piece, his article is not referring to a current formal demand by the government of Italy, but rather a petition by prominent academics which he supports, calling for an end to Merkel's ordoliberal economic policies. Two points in the demands Pini lists highlight the kind of expansionary, Keynesian policies Pini and other petition supporters are hoping to see implemented urgently. One is:

These macroeconomic advantages would enable member countries to implement structural reforms with regard to the main drivers of economic modernization (digital infrastructure, industrial policy, technological and organizational innovation, efficiency and effectiveness of public administration and of the justice system, social welfare for the jobless, measures to combat unacceptable economic and social inequalities which compromise economic growth). The implementation of these structural reforms is essential to increase the benefits of i) and ii) and must be carried out both as part of an overall European policy and through a process of democratic choice within each member country. [my emphasis]
The use of "structural reforms" to refer to changes that would enable expansionary, pro-worker policies is a refreshing reversal of the current neoliberal meaning of "reforms" that the press in the US and Europe commonly uses to refer to changes that cut public services, lower workers' income, decrease job security and further deregulate banking and business corporations.

The other point:

The construction of mechanisms able to counteract asymmetries in the euro area. This will involve, first, a penalty mechanism not only for countries in deficit, but also for surplus countries, with an obligation to implement policies to raise domestic demand to offset asymmetries, and, second, a European subsidy for the unemployed as an automatic stabilizer providing benefits or re-training in exchange for social work, a subsidy to be suspended if a job offer is refused. [my emphasis]
Raising demand to combat the eurozone depression is just sound, basic macroeconomic policy. But in Germany, not only Merkel's CDU but her coalition partners the Social Democrats reject basic macroeconomics in favor of crackpot Hoover/Brüning austerity policies.

Andrés Cala in EU Wobbles Amid Conflicting Priorities Consortium News 11/20/2014 points out that Merkel's high-risk austerity economics is a significant constraint on the confrontational policy toward Russia that Merkel theoretically agrees the NATO should pursue:

Concern over the consequences of possibly overplaying the West’s hand in its showdown with Russia on Ukraine is strongly felt in Germany where Chancellor Angela Merkel has tried to walk a middle line, harshly critical of Russia in rhetoric but hesitant to engage in a full-scale economic war with a major trading partner that supplies much of the EU’s natural gas.

“I can’t see how [sanctions against Russia] would help us move forward economically,” German Vice Chancellor and Economy Minister Sigmar Gabriel said this month. “It’s right that Angela Merkel [is] focusing on dialogue – and not confrontation as others are. … I think it’s totally wrong to react with permanent NATO saber-rattling on the Russian border.”
Political divisions over economic policy interferes with unity on geostrategic affairs. But the dangers of the prolonged eurozone depression can't being ignored in the confrontation with Russia:

Germany also is facing a strong EU backlash against its orthodox economic policies which were imposed on the EU to rein in European government debt especially in Mediterranean nations. This strategy initially helped restore faith in the EU’s ability to recover from the financial crisis, but now those policies are being blamed for the region’s economic stagnation.

Many Europeans even blame Merkel’s austerity recipe for tipping Europe back into yet another recession, which is made potentially more dangerous by the prospect of deflation, the decline in consumer prices that can result from weak demand or an insufficient money supply. A similar debt trap hobbled Japan’s once vibrant economy and left it limping for the past two decades.

If deflation is not countered – by raising demand or expanding the money supply – it can begin a downward spiral of falling profits, declining investments, stunted consumer spending, debt delinquency, unemployment and bankruptcies. Such a crisis could spread quickly through the EU backbone, the 18-member eurozone which shares the euro as a common currency and limits what individual countries can do to address their own economic problems.
The eurozone's One Percent isn't paying the price for Merkel's destructive austerity policies. But the price is very high.

Bryan MacDonald also writes on the problems of the EU and the eurozone, EU is in serious trouble and it’s not Russia’s fault RT America (Russia Today) 11/20/2014. I should note here that in recent years Vladimir Putin's government has been exerting more direct control over the content of RT broadcasts and publications. That doesn't mean that readers should regard the work of a reporter like MacDonald as Russian government press releases, but rather that RT's editorial leanings need to kept in mind when using the source.

MacDonald writes, "Angela Merkel has criticized Vladimir Putin’s, apparent, strategy to spread Russia’s sphere of influence in Eastern Europe. The Chancellor doesn't acknowledge that Germany’s domination of Europe has been disastrous for some states." And it certainly has been!

And  MacDonald's characterization here is a broad one that is scarcely detailed, it's broad outline is correct:

The Berlin government, which she has led for 9 years is sucking the continent dry. While peripheral states flounder and pivotal countries stagnate, Germany is doing just fine. This is because the entire EU system – especially the Euro currency – is propping up its largest member while choking the rest."

Existing members, such as Ireland and Spain were flooded with cheap German credit. This was basically a form of captive loan-sharking. German banks handing out easy money to facilitate the purchase of German-made goods, from cars to electronics. When the scheme went wallop in 2008, the German creditors didn't accept a haircut. Instead, the penalties were passed on to Irish and Spanish taxpayers, further enslaving them to Berlin.

Meanwhile, Germany’s trade surplus continued to expand and they were happy to leave the rest of Europe to rot. Instead of showing empathy, the Hamburg and Berlin media were full of features mocking the economically wrecked nations. Ireland, apparently, had an epidemic of wild, abandoned, horses and the Spanish were delighted at the extra time for Siestas. Oh, what fun the yellow-press had in those halcyon days – and what harm they did to perceptions of Germany. [my emphasis]

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