Monday, October 26, 2015

Sad state of the EU

Wolfgang Münchau warns, "The eurozone is once again in a position where economic recovery is weakening before it really started, where the global risks are rising, and where inflation remains way off target." (Draghi must be more unconventional Financial Times 10/25/2015)

Yanis Varoufakis says, "Europe’s crisis is poised to enter its most dangerous phase." (Schäuble’s Gathering Storm Project Syndicate 10/23/2015)

Münchau there is writing more narrowly about the course of the eurozone economy. But Varoufakis is writing about that, too, as well as the political dimensions of the crisis. But in his FT piece, he notes of the Italian situation, "Matteo Renzi, the Italian prime minister, is currently using every trick in the book to circumvent European budget rules. His previously planned spending cuts are lower; the tax cuts are bigger — and of the wrong kind; and against the advice of the European Commission, he is now cutting unpopular property tariffs instead of labour taxes."

Varoufakis also discusses Italy's bucking of Germany's domination of the eurozone economy:

Renzi has come close to demolishing, at least rhetorically, the fiscal rules that Germany has defended for so long. In a remarkable act of defiance, he threatened that if the European Commission rejected Italy’s national budget, he would re-submit it without change.

This was not the first time Renzi had alienated Germany’s leaders. And it was no accident that his statement followed a months-long effort by his own finance minister, Pier Carlo Padoan, to demonstrate Italy’s commitment to the eurozone’s German-backed “rules.” Renzi understands that adherence to German-inspired parsimony is leading Italy’s economy and public finances into deeper stagnation, accompanied by further deterioration of the debt-to-GDP ratio. A consummate politician, Renzi knows that this is a short path to electoral disaster.
He also discusses the increasingly public dissent by the Socialist government of France to German misrule in the eurozone.

Ambrose Evans-Pritchard reports France signals EU treaty change to avert Brexit, warns on euro survival Telegraph 09/24/2015:

Mr Macron had even tougher words for Germany, warning that the eurozone will disintegrate in a storm of populist revolt unless Berlin drops its vehement opposition to fiscal union and large transfers to the poorer regions.

The former Rothschild banker said the currency bloc is fundamentally unworkable without a joint budget to back it up and will leave debt-stricken countries on the periphery in permanent trouble.

“If we don’t move forward, we are deciding the dismantling of the eurozone. We have to choose: is it a fixed exchange system or a monetary union?” he said.

He called the struggle over the euro a new Thirty Years war in Europe between Calvinists and Catholics. "The Calvinists want to make others pay until the end of their life. They want reforms or no contributions toward any solidarity. On the other side are the Catholics, largely on the periphery,” he said.

"At every eurozone summit, at every Eurogroup, we have this same dilemma between member states. We have to exit this religious war," he said. [my emphasis]
Varoufakis seems to approve Macron's use of "Calvinists" to describe the supporters of Angela Merkel's ruinous austerity economics.

Neither France nor Italy is mounting the kind of challenge that Greece did earlier this year. But their situations are also not nearly as desperate as Greece's is. But Münchau in Spiegel Online recommends Renzi's example along with that of the Canadian Liberal Party's leader Justin Trudeau as potential models for the German Social Democratic Party (SPD) as to how they might revive their steadily declining political prospects: by offering meaningful alternatives to austerity policies. (So könnte die SPD zum Erfolg zurückkehren 23.10.2015)

Michael Krätke writes (Das Problem ist Deutschland Der Freitag 14.12.014), "Die Euro-Krise signalisiert seit mehr als fünf Jahren, dass die Währungsunion umgebaut werden muss, um zu überleben." ("The euro crisis signaled more than five years ago that the currency union had to be reconstructed to survive.")

He's right. But Angela Merkel continues to milk the eurozone arrangements for the narrow benefit they can provide for Germany. And the walls between EU members continue to go up.

Meanwhile, a majority left bloc in the Portuguese Parliament is now confronting President Aníbal Cavaco Silva over his attempt to keep a pro-austerity government in power after the recent elections there. When it comes to enforcing austerity, Merkel and her allies aren't terribly scrupulous about this whole democracy business.

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