Italy and the fight against austerity economics in Europe

Like the Great Depression, the current one has brought some surprising developments in politics in Europe and the United States, hopefully none of which will turn out to have the sort of adverse military consequences that some of them in the Great Depression did.

The latest event to cause the eurozone house of cards constructed by German Chancellor Angela "Frau Fritz" Merkel was the announcement by crooked rightwing plutocrat Silvio Berlusconi that he wants to become Prime Minister of Italy again. He's ready to seize the opportunity offered by the damage being done to Italy by Frau Fritz' Heinrich Brüning economic menu,

Wolfgang Münchau explains in Willkommen zurück, Cavaliere! Spiegel Online 12.12.2012

Der Grund meiner Freude liegt darin, dass er im bevorstehenden Wahlkampf den hartnäckigen politischen Sparkonsens brechen wird. Durch seine Rückkehr in die Politik erleben wir jetzt zum ersten Mal, dass die Krisenpolitik zum Kernthema eines Wahlkampfs in einem großen Land wird. Das war bei den spanischen Wahlen 2011 nicht der Fall, auch nicht 2012 in Frankreich. Und Peer Steinbrück und Angela Merkel unterscheiden sich in ihrer Krisenpolitik eher durch rhetorische Nuancen.

[The basis of my happiness [at Berlusconi's attempted comeback] lies in the fact that in the forthcoming election campaign, the hard-necked political austerity consensus (Sparkonsens) will be broken. By his return to politics, we will now experience for the first time that the crisis policies will become the central theme of an electoral campaign in a large country. That was not the case by the Spanish election of 2011 and also not in 2012 in France.]

I would partially question his comparison to the French election. The Socialists' promises to push back on Frau Fritz' austerity madness and to force a renegotiaton of her fiscal suicide pact were prominent themes in that campaign and certainly were part of the program on which now-President François Hollande only to betray his voters and immediately embrace both. Not unlike what President Obama's is current doing with his trial balloon proposal for a major cut in Medicare benefits.

A chance for the Italian Social Democrats to exploit the situation and regain the political initiative for stimulus and a sensible solution to the euro problems, you say? Yes, that would make lots of sense. Except that, according to Münchau's account, social democratic leader Pier Luigi Bersani, whose party leads the polls and good pull well over 30% in the next election, pretty much aspires to be an Italian Heinrich Brüning: "Bersani verspricht noch mehr Härte, noch mehr Sparen, nur etwas gerechter." ("Bersani promises even more [fiscal] toughness, even more cuts, only somewhat more just ones.") Again, not unlike President Obama's sad and endlessly repeated call for our present-day American robber barons to just pay "a little bit more" in taxes.

Awesome. Like President Obama in the US, Europe's social democrats now aspire to become the largest conservative parties! It's not working very well so far, and it's likely to wind up with their losing their relevance and their ability to become ruling parties at all. Their current leaders may be well compensated for getting them to that point. But their base constituencies are being very poorly served by this process.

Italy actually has two official social democratic parties, i.e, members of the Socialist International: Italian Socialist Party (PSI) and Democrats of the Left (DS).

David Dayen explains in Berlusconi's Return Roils Italian Markets FDL News 12/10/2012 - his coverage of the euro crisis is also something I'll miss when David stops blogging at FDL News on the Mayan-calandar-not-really-the-end-of-the-world date of December 21 - that the austerity policies and the bullying by Germany that essentially forced Berlusconi out of government to be replaced as Prime Minister by a non-elected "technocrat" are issues that have to be taken into account, apart from Berlusconi's more unpleasant characteristics:

I hardly hold any brief for Berlusconi, a corrupt tyrant who has been bilking the Italian public for well over a decade now. Alexander Stille’s book The Sack of Rome details this expertly. However, the fact that he was basically overturned by international bureaucrats in favor of an unelected member of their posse should not be lost here. Especially because that unelected bureaucrat, Mario Monti, did not really do that great a job if you look at key indicators ...

While Monti – with a giant assist from Mario Draghi’s backstop at the ECB – did stabilize borrowing costs for a time, the economy suffered with the austerity measures, growth went negative and unemployment rose. This is not the pedigree of a saviour of Italy. And it risks a return to power for Berlusconi, who has a long list of indignities forced on the Italian people by the last government to call on. He can merely say that Italians deserve a voice in their nation’s future rather than a set of policies imposed from the outside.

Monti wasn’t able to deliver on growth because his prescriptions inhibited growth. His obsessions with “reform,” aligned with the European leadership, ended up sinking Italy deeper into recession and depression, without building a coalition of support. And so the slightest shift can and will cause chaos, as we’re seeing today.

And incidentally, Italy is the third-largest economy in the Eurozone. If it wobbles, so do the other member states, as we’re seeing today.

William Black has an interesting piece skewering the New York Times for their reporting on two contrasting political figures, one who conforms to the Washington Consensus (Italy's Mario Monti) and another who isn't completely sold on the neoliberal gospel (Ecaudor's Rafael Correa), Why Is the Failed Monti a 'Technocrat' and the Successful Correa a 'Left-Leaning Economist'? Huffington Post 12/09/2012

Here is a Spanish-languagen video of Rafael Correa discussing, among other things, the European crisis, El presidente de Ecuador en Buenos Aires: La crisis europea según Correa 12/08/2012:

Tags: angela merkel, austerity economics, brüning, eu, euro, european union, france, françois hollande, italy, rafael correa, weimar republic

Heinrich Brüning and Angie-nomics 1930-32

I'm trying to learn more about how the Great Depression played out, especially in Europe. I recently read a biography of the Angela Merkel of 1930-32, German Chancellor Heinrich Brüning(1885-1970), who rigidly enforced austerity at the early part of the Great Depression in Germany, a counter-cyclical policy that had famously unhappy results.

The biography is by Gottfried Reinhold Treviranus (1891-1971), Das Ende von Weimar: Heinrich Brüning (1968). He was a close political associate of Brüning's and a minister in his cabinet. (There was also a famous biologist named Gottfried Reinhold Treviranus in the early eighteenth century.)

Heinrich Brüning (1885-1970)

Treviranus, a friend and close collaborator of Brüning's, wrote a sympathetic biography, at times obviously defensive over some of the more dubious aspects of Brüning's career. Treviranus is especially sensitive to charges that Brüning's government, which held power under Presidential decree from March 30, 1930 to May 30, 1932, damaged the Weimar democracy and paved the way for Hitler and the NSDAP (Nazi Party) to come to power. His argument is not convincing. In fact, President Hindenburg's extensive interference with parliamentary processes that made Weimar into a semi-democracy even before Hitler became Chancellor in January 1933 actually began with the appointment of Brüning as Chancellor. Treviranus even relates Brüning's hopes as Chancellor to bring back the Kaiser and re-establish monarchical government.

Weimar Germany was a democracy with a serious shortage of democrats among the political, business, military and governmental elites.

Treviranus, even writing the biography in the mid-1960s, was an unrepentant defender of austerity economics during a depression. He spends a chapter polemicizing against Keynesian economics. He refers to it as the "Keynes psychosis" at one point. Although to read Treviranus, Keynes economics pretty much came down to promoting inflation.

Then he follows it up with a chapter defending all the things Brüning's government did to promote public works, which of course Keynes would have approved as far as it went. But the overall effect of Brüning's enthusiastic budget-cutting was a pro-cyclical economic policy that made the depression worse. Treviranus defends Brüning's focus on balancing the budget in that critical period at the start of the Great Depression as having been an essential and totally justifiable policy. If he learned anything about the downside of austerity economics in a depression, it's not readily evident in this biography.

Trevinarus even writes, which no hint of reflection on what it means for the policy he's defending, that German unemployment "first went down under Hitler with the beginning of the armaments program." ("unter Hitler erst mit dem Anlaufen der Aufrüstung abgesunken.") Duh! If Brüning's government had provided an aggressive program to combat unemployment in the 2+ years it was in office, maybe Hitler wouldn't have had the chance to solve the problem his way, with a rearmament drive and displacement of Jews from many jobs and confiscation of the property of Jewish emigrants, that lead to a military catastrophe for Germany.

The result of rising unemployment and social distress was a big boost to the NSDAP, which reached it's height of electoral success in July 1932. (There was an election in March 1933 after the Reichstag Fire, but it could hardly be called a fair democratic election. Though it's notable that the NSDAP was unable to win a majority even under repression conditions controlled by them.)

Treviranus also makes a more plausible case that Allied reparations policy was forcing them to maintain a balanced budget. So was the gold standard, though he doesn't seem to recognize that the gold standard, which had proved a source of stability in ending the hyperinflation of 1923-4, had become a destructive factor by 1930 in depression conditions.

Speaking of hyperinflation, Treviranus claims that the German public generally was focused on that period as especially disruptive. I suspect that was especially true for the German economic elite and their allies. By 1930, unemployment and depression/deflation was clearly much more of a problem. German hyperinflation has become a favorite bogeyman for advocates of austerity economics. I'm particularly skeptical of claims that hyperinflation was a direct cause of the NSDAP gaining power; the argument just doesn't hold up to scrutiny. (See my posts, Krugman on European austerity and that German hyper-inflation thing 01/29/2012 and Again on hyperinflation during the Weimar Republic and Hitler's rise to power 05/07/2012.)

Brüning was from the Catholic Center Party, which along with the Social Democrats (SPD) and the small German Democratic Party (DDP) were the parties that had been genuinely committed to the Weimar Constitution. Brüning's government was a big turn away from normal democratic procedures and toward and more dictatorial kind of rule.

Brüning himself was an opponent of the Nazis and of bringing Hitler into the government. He wound up fleeing Germany in 1934, first to the Netherlands and then to the US, where he became a professor of political science at Harvard. Treviranus narrowly escaped being arrested during the infamous Night of the Long Knives purge, aka, the Röhm-Putsch, in 1934, when Hitler decided to eliminate a number of his internal enemies. Teviranus himself had never been associated with Ernst Röhm's SA, but Brüning's government had had some dealings with Gregor Strasser, who left the NSDAP and who Hitler considered a deadly enemy. Treviranus was able to escape Germany in 1934 and eventually wound up in the US, as well.

Gottfried Trevinarus (1891-1971)

Trevinarus identifies himself as having been the speaker in the Reichstag for the Stahlheim, the League of Front Soldiers (BdF) from 1924-29. (pp. 193-4) He sat in the Reichstag as a member of the Deutschnationalen Volkspartei (DNVP) headed by published Alfred Hugenburg. Treviranus broke with the DNVP in January 1930 and founded the Volkskonservativen Vereinigung (People's Conservative Union), and later that year it merged with another breakoff faction of the DNVP to become the Konservativen Volkspartei (KVP) (Conservative People's Party) heavily backed by German industry.(See Heinrich August Winkler, Der lange Weg nach Westen, Bd. 1; 2000) So he was no longer part of the DNVP when Hugenburg formed the Harzburg Front, an anti-Weimar-democracy alliance that included included the Alldeutschen Verband, the DNVP, Hitler's NSDAP and the Stahlhelm group. The inclusion of the Nazis in that alliance was a big boost in Hitler's rise to power.

Tags: austerity economics, brüning, trevinarus, weimar republic

Greece, Spain, Angie and Heinrich

It's nice to see Harald Freiberger und Markus Zydra in the Süddeutsche Zeitung recall that economic depressions can and have had adverse affects on democracies (Griechenland-Krise im historischen Vergleich. Das Gespenst von Weimar 26.02.2012).

The Troika of the IMF, the EU and the ECB (European Central Bank) agreed a week ago on paying the latest tranche of bailout money to Greece, in exchange for more of Angela Merkel's crippling austerity politics, with the absurd aim of reducing Greece's debt-to-GDP ration to 120% by 2020. Greece, Spain, Ireland, Portugal and Italy are all undergoing EU- and bond market-imposed austerity programs of Angienomics, in the middle of a depression when the business cycle is dropping into a new recession in Europe. Others not under immediate pressure are taking less drastic but similar steps, as the Great God Free Market demands its latest sacrifices. Angienomics will shrink their economies, damage millions of lives, worsen their debt ratios and endanger democracy.

Democracy is in abeyance already in Hungary. Greece and Italy are operating under EU-imposed governments whose democratic legitimacy is valid only the most technical of senses, i.e., they went through the motions of parliamentary approval before installing the bank-collectors-agency governments that Angie demanded.

Feiberger and Zydra write:

Die spanische Regierung hat ehrgeizige Sparziele: Experten nennen das eine prozyklische Politik. Sie verstärkt den Trend, und der ist negativ. Die Rezession verschlimmert sich. "Dabei besteht die Gefahr, dass es durch die Abschwächung der Wirtschaft zu geringeren Staatseinnahmen und damit zu einem höheren Defizit als geplant kommt", fürchtet [Ökonom Peter] Bofinger und warnt: "Wenn die spanische Politik gezwungen wird, hierauf mit erneuten Sparmaßnahmen zu reagieren, dann spart sich das Land wirklich kaputt."

Griechenland, so Bofinger, sei diesem Punkt schon viel zu nahe. "Die katastrophale Lage der griechischen Wirtschaft kann nicht primär auf die mangelnde Spar- und Reformbereitschaft Griechenlands zurückgeführt werden", sagt er. Die jetzt beschlossenen Maßnahmen wie die Senkung des Mindestlohns, Rentenkürzungen und die Entlassung von 15.000 Staatsbediensteten würden vielmehr fatal an die Notverordnungspolitik des Reichkanzlers Heinrich Brüning von 1930 bis 1932 am Ende der Weimarer Republik erinnern und die Nachfrageschwäche in Griechenland weiter verschärfen.

[The Spanish government has ambitious savings goals: experts call that a pro-cyclical policy. It strengthens the trend and that is negative. The recession will get worse. "That creates the danger that through the weakening of the economy, there will be less government income and therefore a higher deficit than planned.," fears [economist Peter] Bofinger and warns: "If the Spanish policy is compelled to respond to that with new savings measures, then the country will really save itself to death."

Greece, according to Bofinger, is much to close to that point. "The catastrophic situation of the Greek economy cannot be traced primarily to the insufficient readiness of Greece to save and reform," he says. The currently decided measures like the lowering of the minimum wage, reduction of pensions and the laying off of 15,000 public employees would more recall the emergency-decree policy of Reich Chancellor Heinrich Brüning from 1930 to 1932 at the end of the Weimar Republic, and increase the weakness of economic demand in Greece.]

Political changes immediately following Brüning's Chancellorship are not generally considered to be constructive.

The EU, whose purpose way to secure democracy and peace in Europe, is turning into a nightmare for democracy. In Greece and several others countries, the nightmare is already underway.

Tags: greece, eu, european union, brüning