German SPD ready to sacrifice its future and the future of the European project to be Merkel's flunkies in a Grand Coalition

The SPD bigwigs have indulged in the bare minimum of theatrics to reluctantly acknowledge that they base voters aren't thrilled with the SPD entering yet another Grand Coalition government as Angela "Frau Fritz" Merkel's junior partner. But Angie the Great has already declared that her SPD flunkies would fall in line by Christmas at the latest. Nikolaus Blome et al reported in the print edition of Der Spiegel ("Kleines Karo, großer Wurf" 42/2013 21.10.13) that she was already saying in October, "Weihnachten kommt schneller, als man denkt." ("Christmas is coming sooner than you think.")

It's a measure of the weirdness of German politics right now that Frau Fritz' European politicies have not been a significant issue in the coalition negotiations. Both the SPD and Merkel's CDU/CSU are determined to milk Germany's benefits that it gains in the eurozone at the expense of shoving Cyprus, Greece, Ireland, Italy, Portugal and Spain into prolonged depression. Blome et al explain that perspective pretty well:

Hintergrund der europaischen Visionen ist die glänzende wirtschaftliche Lage in Deutschland: Berlin braucht eine scharfere Haushaltskontrolle derzeit nicht zu furchten. Die Arbeitslosigkeit bewegt sich am Rand der Vollbeschäftigung, die Finanzlage hat sich, zumindest beim Bund, entspannt. Ach was, es herrscht Ūberfluss! Die neue Koalition kann aus dem Vollen schöpfen.

Und das wollen die Neukoalitionare auch tun. Als Erstes werden sie damit beginnen, Wohltaten zu verteilen und Geld auszugeben. Dank der guten Konjunktur werden dafür noch nicht einmal höhere
Steuern nötig sein. Bislang hat Finanzminister Wolfgang Schäuble in seiner mittelfristigen
Finanzplanung ab dem übernachsten Jahr zunehmende Überschusse im Bundeshaushalt eingeplant: Fur 2015 erwartet er ein Plus von 200 Millionen Euro, für 2016 eines von 5,2 Milliarden Euro, für 2017 schließlich eines von 9,6 Milliarden Euro.

[The background of the European visions is the sparkling economic situation in Germany: Berlin doesn't need to fear sharper budget control right now. Unemployment hovers on the border of full employment, the public financing situation has eased, at least at the federal level. Surpise, there's a surplus! The new coalition can scoop it all up.

And that's what the new coalition partners want to do. First, they will start to distribute good deeds and hand out money. Up until now, Finance Minister Wolfgang Schäuble planned increasing surpluses into his middle-range financial planning: For 2015 he expected an excess of €200 million, for 2016 €5.2 billion, eventually for 2017 €9.69 billion.]

That fashionably cynical characterization - "they will start to distribute good deeds and hand out money" - basically means they will spend money on stuff their voters want. Here we see how the neoliberal suspicion of all government expenditures except those than directly benefit Big Business seems even into the allegedly progressive-leaning Spiegel.

Any stimulus in Germany would be good, because it would help generate domestic consumption and some imports and thereby help bring down the German national surplus that now threatens not just the European economy but the whole world's. But the coalition partners aren't planning any serious stimulus for the European periphery, a shameless shirking of their responsibilities. For that, Germany would need to run significant budget deficits and deliberately generate higher inflation in Germany itself. Neither Frau Fritz nor her SPD poodles intend to do any such thing.

Blome et al call her goal for Europe, "Ein echter Umbau der Euro-Zone, ein Großer Schritt in Richtung ,Wirtschaftsregierung' - so wie auch die SPD sie gern hätte." ("A real reconstruction of the eurozone, a big step in the direction of a 'business government' - just like the SPD also would like it.") A "business government." It's a step backward for the CDU to accept a Calvin "the-business-of-America-is-business" Coolidge philosophy of government. It's even worse for the SPD to adopt it. How long will they even try to maintain an image as a center-left party at this rate?

If we assume that the SPD leadership suddenly starts displaying a brilliance of political craftiness far beyond what their recent records suggests that they possess, then maybe they will at least be able to get some credit for the "good deeds" they do and the euros they spread out. More likely is that Frau Fritz will take maximum credit for them.

Klaus Stuttmann in this 11/10/2013 cartoon illustrates on of the Business Government measures that Frau Fritz and her SPD pals have agreed on, a cutback in subsidies to renewable energy development:

Angie the Great is saying: "It's not bad! It's renewable!"

In what may be a Freudian slip, Blome et al characterize Frau Fritz' position in a new Grand Coalition this way:

Merkel verfügt zu Beginn ihrer dritten Kanzlerschaft in Deutschland und Europa über eine Machtfülle wie kein Kanzler vor ihr. Seit der ersten Großen Koalition vor einem halben Jahrhundert stand nie mehr eine so satte Mehrheit im Bundestag hinter einer Regierung. In Europa ist Deutschland in der Krise zur unbestrittenen Führungsmacht geworden.

Gerade die Große Koalition beschert Merkel nun die Mehrheiten, die sie nutzen könnte, um Deutschland und Europa nachhaltig zu prägen und die ganz großen Fragen anzugehen: von den Reformen in Deutschland über eine Neuordnung des Föderalismus bis zur Reform der EU-Institutionen.

Merkel will have at her disposal at the beginning of her third Chancellorship in Germany and Europe power like no Chancellor before her. Since the first Grand Coalition {CDU/CSU/SPD coalition} a half century ago, there has no been such a large majority in the Bundestag behind a government. In Europe, Germany has become the undisputed leading power in the crisis.

It is precisely the Grand Coalition that now brings Merkel the majority that she can use to shape Germany and Europe in a lasting way and to take on the big issues: from reforms in Germany to a new arrangement of {German internal} federalism all the way to the reform of the EU institutions. {my emphasis}

This reads like kiss-up journalism to me. But "her third Chancellorship in Germany and Europe" is a telling phrase. Germany as "the undisputed leading power in the crisis" has real and immediate responsibilities for all of the Eurozone, in particular. Germany is not primarily a national economy, it's part of the eurozone economy. That's part of what being part of a currency union means. The euro as a cheaper currency than what a separate German national currency would be is the reason that Germans can plausibly (if myopically) view themselves as being sitting pretty in comparison to the eurozone periphery.

And we have to keep in mind what terms like "reforms" mean in AngieSpeak and in the neoliberal vocabulary more generally.

Robert Misik characterizes the situation this way (Ist EU-Europa noch zu retten? Misik.at 08.11.2013) and also gives a good picture of what "reform" means in AngieSpeak:

Nun sind die Pläne durchgesickert, die Angela Merkel für Europa hat. "Mehr Europa", aber das heißt vor allem: noch mehr Troika, noch mehr Austerity, noch mehr Verschiebung von Macht zu schwach legitimierten Experten- und Technokrateninstitutionen. Dabei ist klar: Mehr europäische Integration ist notwendig, wenn die Krise der EU überwunden werden soll. Auch gemeinsame Haushaltsregeln sind notwendig, wenn die Währungsunion funktionieren soll. Aber noch mehr Austerity und noch weniger demokratische Legitimation werden Europa kaputtmachen.

Und eines ist auch klar: Einerseits wäre mehr Integration notwendig, aber aufgrund der katastrophalen Politik, die Europas Eliten in den vergangenen Jahren gemacht haben, gibt es dafür kaum mehr Legitimation durch die Bürger und Bürgerinnen.

[Now the plans that Angela Merkel has for Europe have leaked out. "More Europe," but that means above all: still more Troika, still more austerity, still more transferring of power to weakly legitimized institutions of experts and technocrats. With that it's clear: More European integration is necessary, if the EU crisis is to be survived. And common budget rules are necessary if the currency union is going to function. But still more austerity and even less democratic legitimation will do Europe in.

And one thing is also clear: On the one hand, more integration would be necessary, but on the basis of the catastrophic policy that Europe's elite have made in the past years, there is hardly any legitimation to be had from the citizens.]

One necessary element of a successful currency union and combined EU financial market would be a genuine "banking union," as explained in this Euronews Real Economy report, which also has some background on the current crisis, What a European Banking Union could do for the future of Europe 11/06/2013:

But Frau Fritz is committed to a banking union in only a limited sense, and she can be expected to keep her German nationalist perspective first in priority in constructing the banking union. What she desperately wants to avoid is having to recognize the weakness of the German banking sector and to undertake the expensive job of recapitalizing and better regulation of German banks.

Tags: angela merkel, austerity economics, eu, euro, european union, neoliberlism, spd

Again on Germany's surplus

This column by James Mackintosh may be a little melodramatic in talking about "currency wars." (Germany feels US ire over war on currencies Financial Times 11/01/2013) But it does provide a useful description of Germany's current account surplus and why its economy needs greater fiscal stimulation, for its own good and the good of the eurozone.

There is no doubt slow domestic demand in Germany has made it harder for the rest of the eurozone to fix its problems. Equally, replacing the Deutschmark with the euro has given Germany an undervalued currency, setting up the country to export more this year than the US. According to International Monetary Fund data, post-Bretton Woods Germany has never had a weaker currency when adjusted for price inflation; based on wages its real exchange rate is a fifth weaker since 1995 and 10 per cent weaker than when the euro launched in 1999.

Germany itself should want to reduce its near-record 7 per cent current account surplus. The crisis demonstrated it is hopeless at investing its export gains overseas, showing it up as one of the biggest losers from US subprime, and heavily exposed to the eurozone periphery.

Still, Germany is showing some signs of rebalancing. German inflation has been higher than the eurozone average for six months, the longest period of the euro-era other than at the end of the 2007 boom. A major point in coalition talks under way in Berlin is the introduction of a minimum wage, which should help pay rise further. Consumption remains weak, but is rising and is expected to drive growth next year, when the current account is forecast to shrink. [my emphasis]

Tags: angela merkel, austerity economics, eu, euro, european union, neoliberlism

The IMF vs. Merkel?

Spiegel Online reports that even the International Monetary Fund (IMF), one of the temples of the neoliberal faith, has criticized the policies of German Chancellor Angela "Frau Fritz" Merkel in a recent visit (Export-Streit: IWF drängt Deutschland zur Bescheidenheit 03.11.2013):

Nach SPIEGEL-Informationen schlug der Vize-Chef der Organisation, David Lipton, bei seinem Besuch im Bundesfinanzministerium in der vergangenen Woche vor, Deutschland solle sich verpflichten, seine Überschüsse zu reduzieren. Die Bundesregierung solle eine konkrete Zielgröße festlegen, die künftig nicht mehr überschritten werden dürfe.

[According to Spiegel's information, the Vice-Chief of the organization, David Lipton, during his visit in the Federal Finance Ministry in week before last, recommended that Germany should commit itself to reduce its [current account] surplus. The government should set a target amount, he recommended, that in the future should not be exceeded.]

It's not the first time the last couple of years that Frau Fritz has found her policies the target of IMF criticism. (Markus Dettmer and Christian Reiermann, Merkel Maligned: IMF Board Attacks Euro Crisis Management Spiegel International 06/03/2013; Nicholas Kulish and Annie Lowrey, German Leader and I.M.F. Chief Split Over Debt New York Times 03/09/2012).

As Spiegel points out, the IMF's reported recent criticism is in line with that in the US Treasury Department's Report to Congress on International Economic and Exchange Rate Policies 10/30/2013, which said:

Within the euro area, countries with large and persistent surpluses need to take action to boost domestic demand growth and shrink their surpluses. Germany has maintained a large current account surplus throughout the euro area financial crisis, and in 2012, Germany’s nominal current account surplus was larger than that of China. Germany's anemic pace of domestic demand growth and dependence on exports have hampered rebalancing at a time when many other euro-area countries have been under severe pressure to curb demand and compress imports in order to promote adjustment. The net result has been a deflationary bias for the euro area, as well as for the world economy. (p. 3) [my emphasis]

Several very large and persistent surpluses have seen no adjustment in some cases (Germany, Taiwan) or have widened further in others (Korea). The euro area's overall current account, which was close to balance in 2009-2011, increased to a surplus of 2.3 percent of GDP in the first half of 2013. Germany's current account surplus rose above 7 percent in the first half of 2013, while the current account surplus for the Netherlands was almost 10 percent. Ireland, Italy, Portugal and Spain are all now running current account surpluses as import demand in those economies has declined. Thus, the burden of adjustment is being disproportionately placed on peripheral European countries, exacerbating extremely high unemployment, especially among youth in these countries, while Europe’s overall adjustment is essentially premised on demand emanating from outside of Europe rather than addressing the shortfalls in demand that exist within Europe. (p. 10) [my emphasis]

The euro area economy expanded by 1.2 percent, on a seasonally adjusted, annualized basis (saar), in the second quarter of 2013, marking the first expansion of economic activity in the euro area in seven quarters. Expansion was supported by domestic demand growth in Germany - though growth in Germany still continues to rely on positive net exports, which continues to delay the euro area’s external adjustment process – and on domestic demand in France. Economic conditions across the euro area remain uneven with the countries in the periphery remaining in recession overall. Ireland and Portugal expanded on a quarter-on-quarter saar basis in the second quarter, but this may have been the result of transitory factors such as weather, and the economies of Greece, Italy, and Spain continued to contract during the same period, albeit at a more moderate pace. (p. 24) [my emphasis]

It's a sad, astonishing record, with Germany and the eurozone repeating some of the best-known mistakes of the Great Depression: the gold standard then, the eurozone now; Heinrich Brüning/Herbert Hoover policies then, Brüning/Merkel policies now.

The Treasury report deals with the reality that Germany's current relatively favorable economic situation is a function of the excessive German current account surplus, which is the flip side of the brutal austerity policies in the euro periphery countries:

Euro area deficit countries have sharply reduced their current account deficits, but euro area surplus countries have not reduced their current account surpluses. The euro area's overall current account swung into surplus in 2012, and the surplus has increased further in the first half of 2013 to almost 2.3 percent of GDP. The Netherlands and Germany have continued to run substantial current account surpluses since 2011, while the current accounts deficits of Italy and Spain and the smaller economies in the periphery have contracted significantly, primarily as a result of a collapse of domestic demand and falling wages. Ireland, Italy and Spain have run surpluses in recent quarters, and Portugal moved into surplus in the second quarter of 2013. Germany’s current account surplus, meanwhile, rose above 7 percent of GDP in the first half of 2013, with net exports still accounting for a significant portion (one-third) of total growth in the second quarter, suggesting that rebalancing is not yet occurring domestically. To ease the adjustment process within the euro area, countries with large and persistent surplus need to take action to boost domestic demand growth and shrink their surpluses. Germany has maintained a large current account surplus throughout the euro area financial crisis, and in 2012, Germany’s nominal current account surplus was larger than that of China. Germany’s anemic pace of domestic demand growth and dependence on exports have hampered rebalancing at a time when many other euro-area countries have been under severe pressure to curb demand and compress imports in order to promote adjustment. The net result has been a deflationary bias for the euro area, as well as for the world economy. Stronger domestic demand growth in surplus European economies, particularly in Germany, would help to facilitate a durable rebalancing of imbalances in the euro area. The EU’s annual Macroeconomic Imbalances Procedure, developed as part of the EU's increased focus on surveillance, should help signal building external and internal imbalances; however, the procedure remains somewhat asymmetric and does not give sufficient attention to countries with large and sustained external surpluses like Germany. (p. 25) [my emphasis]

Continuing directly, the Treasury report describes what Heinrich Brüning policies look like today:

In 2012, the euro area, in aggregate, undertook one of the most aggressive fiscal consolidations of the advanced economies despite having the smallest cyclically-adjusted fiscal deficit and weak growth prospects. While the pace of consolidation has moderated somewhat this year, the euro area structural fiscal deficit is expected to decrease by another 0.9 percent of GDP in 2013.

Tags: angela merkel, austerity economics, eu, euro, european union, neoliberlism

Krugman on Angela Merkel's misrule of the EU

Paul Krugman gives an accessible description of one of the key piece of the strategy of German Chancellor Angela "Frau Fritz" Merkel for Germany to benefit by imposing brutal austerity policies on Cyprus, Greece, Ireland, Italy, Portugal and Spain (The Harm Germany Does 11/01/2013):

The creation of the euro was followed by the emergence of huge imbalances, with vast amounts of capital flowing from the core to the periphery. Then came a "sudden stop" of private capital flows, forcing the peripheral nations to eliminate their current account deficits, albeit with the process slowed by the provision of official loans, mainly through loans among central banks. The really bad news for the periphery is that so far the adjustment has taken place mainly through depressed economies rather than regained competitiveness; so the counterpart of that “improvement” for Spain is 25 percent unemployment.

Normally you would and should expect the adjustment to be more or less symmetrical, with surplus countries reducing their surpluses as deficit countries reduced their deficits. But that hasn't happened. Germany hasn't adjusted at all; all of the rise in peripheral European current accounts has taken place at the expense of the rest of the world.

And that's a very bad thing. We are still in a world ruled by inadequate demand, and very much subject to the paradox of thrift. By running inappropriate large surpluses, Germany is hurting growth and employment in the world at large. Germans may find this incomprehensible, but it's just macroeconomics 101.

You might argue that it's not the German government’s fault that it runs surpluses — but you'd be wrong. (I've fallen into this trap, but acknowledged the error.) For one thing, Germany has pursued fiscal austerity despite its creditor status, contributing to an overall tightening of policy in the eurozone. And one way to think about Germany’s role within the euro is that it is in effect engaging in huge foreign exchange intervention via Target 2, which holds down the "shadow Deutche Mark"[.]

Target 2 is the clearing mechanism that is part of the euro currency arrangement, in which the German Bundesbank lends money (euros) to the central bank of another country from which capital is moving into Germany. In a well-functioning currency system, the reverse process that occurs when capital moves from Germany to other countries, and the loans would zero out over time.

But in the current system, Target 2 has become one of the major risks to Germany and is one big reason I say that Frau Fritz is actually riding the tiger with her euro policy. If the euro were to disintegrate as a currency, the other end of those Target 2 assets on the Bundesbank's books would disappear, since they are part of a mechanism tied to the euro currency. The German government would then be on the hook to recapitalize the Bundesbank for those amounts.

One slight piece of good news for Germany in the Target 2 chart that Krugman provides is that its Target 2 assets are down from around 750 billion euros in 2012 to around 560 billion now. Still a huge amount.

Krugman's post is a response to Frau Fritz' government's defense of their policies as reported in this article by Christopher Alessi, Raw Nerve: Germany Seethes at US Economic Criticism Spiegel International 10/31/2013.

Krugman also has More Notes From Germany 11/01/2013:

Any story about the determination of the current account balance must take this identity into account. Suppose you have wonderful products that the world loves; even so, if you have low savings and high investment, you must run deficits. How can this happen? Simple: you end up with a high value of your currency and/or high wages relative to competitors.

So while it's impressive that Germany can run a surplus despite quite high labor costs, and that's a testimony to the quality of its stuff, ultimately the surplus reflects high savings relative to investment.

And we are, as I said in a different context just the other day, in a world awash in savings, a world in which someone who decides to spend less and save more makes the whole world poorer. That's not the normal situation, but it's where we are now, and where we have been for five years.

Krugman speculates that Frau Fritz' government may really not understand this. But I tend to suspect that's too generous. They're just willing to milk the euro to Germany's benefit at the expense of the countries currently under Frau Fritz' austerity hammer.

Tags: angela merkel, austerity economics, eu, euro, european union, greece, italy, neoliberlism

Merkel's nationalism and social-democratic failures

German Chancellor Angela "Frau Fritz" Merkel isn't waiting to form a new government before she starts trying to strengthen her power over other countries.

She's proposed increasing the authority of the European Commission over the budgets of individual countries. (Mehr Rechte für EU-Kommission: Merkel will europäische Verträge ändern Spiegel Online 19.10.2013). In practice, it would give Germany more power to impose perpetual austerity policies on the EU nations.

It sounds internationalist at first glance, German Chancellor Angela "Frau Fritz" Merkel wanting to enhance the authority of the European Commission over the budgets of individual countries. (Mehr Rechte für EU-Kommission: Merkel will europäische Verträge ändern Spiegel Online 19.10.2013)

Her government is also getting serious pushing on a plan she and her outgoing Defense Minister Thomas de Maizière (CDU) have been promoting. As Matthias Gebauer et al report in Reform: German Plan Faces Broad Opposition Spiegel International 10/22/2013:

Two weeks ago, German officials in Brussels and other European capitals sounded the alarm. France was trying "to discredit" the German proposal to reform NATO, according to a presentation given to de Maizière on Oct. 9. Paris was "making a huge effort in the capitals and at NATO headquarters to pull over to their side those countries that have remained open, but had not yet clearly backed the plan," said the officials. Their conclusion: "We have to count on France's fundamental opposition."

The resistance of the French is directed against de Maizière's reform proposal, which the defense ministers will first address at the meeting on Tuesday. The German concept envisages that the alliance in future be divided into "clusters," which will each be led by one of the larger NATO member states.

This principle has already been applied to foreign missions on a case-by-case basis, such as when Germany took the lead for other allies in northern Afghanistan.

But going forward, Berlin wants such groupings to be firmly anchored within NATO's infrastructure. "What is new is the extent, the intensity and the scope of its application," says the paper that de Maizière distributed to other NATO members. The plan is that that these states pool their military capabilities and even join together to procure new weapons systems and equipment.

France is not the only NATO member state that sees such a step as potentially infringing on its national sovereignty. Spain and Slovakia have also expressed caution in the NATO council. Even countries that welcome the German proposals, including the United States and the United Kingdom, are pushing the question of how smaller member states, which lack certain military capabilities, can rely on Germany's solidarity if joint missions abroad must be approved every time by the Bundestag, Germany's lower house of parliament. [my emphasis]

It's not surprising that the Obama Administration's worry as reported here is that Germany won't be enthusiastic enough for future wars. European NATO partners are also concerned about the increased influence it would give Germany in their own military planning and purchases.

I have to wonder if Frau Fritz doesn't realize that her nationalistic policies in the euro crisis are undermining the basis of European international cooperation built up over decades. Why should NATO partners like Italy or Spain whose economies are being crippled by Merkel's austerity policies want to give her more power over their militaries?

Nikolaus Blome und Björn Hengst report that the Social Democratic grouping in the Eurpean Parliament is also opposed to her proposal for new powers to the EU Commission, which in practice mean new powers for Germany and Frau Fritz. (Mehr Macht für Brüssel: Widerstand gegen Merkels Europa-Pläne Spiegel Online 21.10.2013) The changes she is proposing would require changes in the EU treaties, which doesn't seem to be anything other EU countries want to undertake right now.

I would be amazed if the Angie-compliant German SPD, which has supported her EU policies including the austerity requirements like faithful puppy-dogs, would offer any serious resistance to that or any other of her euro policies. If they were prepared to do that, EU policies would have been a major point of contention in the coalition discussions. In reality, they seem to be an area of easy agreement.

French philosopher Alain Badiou in Was unsere Feinde am meisten hassen Der Freitag 22.10.2013 laments - in a vague way and a pessimistic tone - that the "left" hasn't done more to effectively challenge EU dictates. He makes a good point that the legacy of Cold War anti-Communist ideology still hampers the efforts of left activitists and parties to counter the neoliberal consensus. But Badiou seems to think that nothing of significance can be accomplished until the workers of the world can reconstruct some version of the First International that will be acceptable to French academics. How this differs in any essential way from total cynicism and apathy is not clear to me.

Fortunately, in the real world that will always be too lowly for the Badious of the world to bother to much notice, there are new left-leaning parties emerging and/or increasing in strength, such as the SYRIZA group led by Alexis Tsirpis in Greece and the Five Star Movement in Italy, both of them parties with realistic chances of taking power in the next elections in their countries. Elections which are likely to come sooner rather than later.

The German SPD's decision to go into another coalition headed by Frau Fritz, and their disgustingly compliant behavior in the process of forming a government, could be something like a suicidal decision. It offers a great opportunity for both the Green Party and, even more so, the Left Party to grow their vote and surpass the SPD.

The SPD just celebrated their 150th anniversary as a party. They've had a good run. But their determination to once again become junior partners in a coalition headed by Frau Fritz could wind up reducing them to minor-party status.

Alexis Tsirpis last month addressed the question of the European social-democratic parties' positions in the euro crisis (Alexis Tsipras at the Kreisky Forum, Vienna (the complete speech/address to Austrian social democrats Yanis Varoufakis Blog 09/24/2013):

Today’s PASOK [Greece's social-democratic party] is in eclipse because it failed to perceive the consequences both of the crisis per se and of the neoliberal management of the crisis for a deficit country, such as Greece, participating in an architecturally flawed monetary union subjugated to an symmetric shock.

There is a lesson to be learned from the crisis for all of us but especially for the social democratic parties[.]

Dear Friends,

In the 1990s, most European social democratic parties gradually divorced themselves from policies that try to regulate capitalism.

However, there were times post-World War II and courageous and inspired European socialists, like Bruno Kreisky, marched on the road of of social democratic values, principles and policies.

In a recent Spiegel article, the Financial Times columnist Wolfgang Munchau argued on the issue:

"The SPD finally gave up on Keynesianism when the last Keynesian in the party, Oskar Lafontaine, quit in 1999, and left the field open to Gerhard Schroeder, who later pursued his supply-side reforms.

Today, the SPD is just another conservative supply side party, where the differences with the CDU are reduced to discussions about distribution, but no longer about fundamental issues. This is why the debate between Merkel and Steinbruck has been so lame – a duet as some newspapers called it".

I absolutely agree with this view. If social democrats had followed the legacy of statesmen, such as Bruno Kreisky, Willy Brandt or Olof Palme, Europe would not have turned into today’s neoliberal desert. [my emphasis]

Tags: angela merkel, austerity economics, eu, euro, european union, greece, italy, neoliberlism, spd

Merkel's German nationalism and the EU

It sounds internationalist at first glance, German Chancellor Angela "Frau Fritz" Merkel wanting to enhance the authority of the European Commission over the budgets of individual countries. (Mehr Rechte für EU-Kommission: Merkel will europäische Verträge ändern Spiegel Online 19.10.2013)

But for Merkel, who is running the EU according to a milder form of the model by which Leonid Brezhnev and his successors ran the Warsaw Pact, more power to the Commission means more power to her. More specifically, according to this report, it would give her (via the Commission) more power to impose perpetual austerity policies on the EU nations. (I should note that I'm interpreting here what Spiegel reports in more neutral jargon, but I'm confident in my interpretation based on Frau Fritz' history with the EU.)

The problem for Merkel's approach is that the costs to the euro "periphery" countries is enormous, with years more suffering in sight. The European Central Bank (ECB) successfully stabilized the situation against interest rate speculators - the fabled "bond vigilantes" - by using a broad interpretation of the ECB's authority to backstop national bonds that might come under attack.

Frau Fritz frames the problem as a debt crisis in which Germany must teach the inferior nations how to behave by imposing gruesome austerity policies on them. One way to look at it is that absent mechanisms for systematic transfers of wealth within the currency zone to adjust for differential rates of changes in productivity, the periphery countries have to undergo real devaluation, meaning in this case major reductions in wages and living standards until national competitiveness becomes more equalized. Without the trap of the euro currency zone, such adjustments could be made with far less devastating human consequences. Paul Krugman has been following how this dilemma plays out, e.g., Do Currency Regimes Matter? 10/19/2013.

Another aspect of Frau Fritz' approach has been to further institutionalize austerity economics in the EU treaties and bailout terms. The current EU agreements require arbitrary limits on debt as a percentage of GDP as well as equally arbitrary limits on annual budget deficits. In effect, the current EU arrangement outlaw Keynesian economic policies during a depression. Instead, in a recession in which GDP is shrinking, the rules require a country to pursue pro-cyclical policies of cutting government deficits and spending which accelerates the decline.

The periphery countries currently under Frau Fritz' austerity hammer - Cyprus, Greece, Ireland, Italy, Portugal and Spain - have been experiencing that already in the current depression. Given targets of debt as a percentage of GDP, they've cut their government spending, which causes the economy to contract, which makes the debt as a percentage of GDP bigger, which requires they cut government spending even more, and so on, over and over.

And the premise that the periphery countries can pay down the current debt without major debt relief is a conscious fraud, argues Yanis Varoufakis (The US Debt Ceiling Strife from a European perspective 10/17/2013):

In Peripheral countries like Greece, Portugal, Spain, Ireland, even Italy, countries immersed and drowning in un-payable debt, the race has been on for 4 years now to pretend that these insurmountable debts can be repaid even though we all know they cannot. Imagine the Greeks’ bafflement when they hear that the most powerful economy in the world, which has no trouble repaying its debts, is toying with a default when Greece and Europe have struggled so hard to mislead the world that Greece’s debt will be, somehow, repaid. Using default as a weapon with which to wage internal wars seems to Europeans like a very peculiar form of self-inflicted credibility loss.

Italy survived a government crisis just recently that could have led to new elections, which likely would have strengthened the anti-austerity, anti-Merkel parties and increased the pressure to refuse new austerity measures. Now they may be facing another one. (Neue Regierungskrise in Italien Nachrichten.at 19.10.2013) As Reuters reports, the current Prime Minister Enrico Letta proposed a budget that "seems designed more to offend nobody than to give the euro zone's most chronically sluggish economy a decisive boost." (Letta plays safe with solid but unambitious Italian budget 10/16/2013)

This is no way to fight a depression. But Merkel is not only dogmatically committed to austerity economics. It provides national advantages to Germany's export-oriented economy for the non-German part of the eurozone to have weak economies indefinitely while they implement internal devaluation. The value of the euro is based on the strength of the currency zone economy as a whole, which means that the euro is a cheaper currency for Germany than a separate German currency would be. This is fine by Angie. And the Social Democratic Party (SPD) with whom she's currently negotiating a new coalition government is not going to make any kind of real challenge to that policy, much to to their shame - and almost certainly to their future decline as a competitive party.

Markus Wehner's commentary in the 20.20.2013 Frankfurter Allgemeine Zeitung on the coalition negotiations is title, Die Schwarze Witwe lieben lernen ("Learning to Live With the Black Widow"). Angie previously had the SPD as a junior coalition partner in 2005-9, after which the SPD's voting percentage took a dive. Wehner quotes an unnamed "SPD man" as having observed that the fall of 11% points in the SPD's vote share in 2009 normally happens only in the case of a country going bankrupt or in a civil war. Frau Fritz' junior partner in the outgoing government is the Free Democratic Party (FPD), which in September's election didn't even get enough votes nationally to be represented in the Bundestag.

As Wehner points out, in a different tone than I'm summarizing it, is that the current SPD leadership is so pitiful that they have taken up an explanation for the 2009 election debacle that Frau Fritz herself offered publicly. It wasn't Angie's fault or her policies, it was the SPD's fault! Because, well, whatever, we should just go into another Grand Coalition headed by Merkel. This is really sad to see. One of the main arguments he cites is essentially a circular one: we allowed Merkel to punk us in the previous Grand Coalition, so there's no reason to not go into another one! Actually a circle closes, and I'm not sure that argument does. But the SPD leaders obviously aren't trying very hard to remind themselves or anyone else what a political disaster the first Angie The Great Coalition was for the SPD.

Alexis Tsipras, head of the left SYRIZA grouping that is currently the most popular party in Greece, is reminding Germany of a debt it owes Greece from an earlier and even uglier outbreak of German nationalism, the Second World War. Germany occupied Greece and dealt out a lot of suffering a death. (Eberhard Rondholz, Blutspur durch Hellas Zeit Online 08.03.2001) One of the German's methods of plundering Greece was to force the Greek central bank to loan them money. And despite the coercion involved, they were formally set up as loans, loans which the German government never repaid or otherwise resolved. Zeit Online provides an estimate sourced to unspecified Greek politicians that the debt would be worth €40 billion (around $54 billion). (Griechenlands Linke verlangt Rückzahlung deutscher Schulden 14.09.2013) This is separate from any reparations issue, something that has also been raised by Greeks justifiably angry over German behavior in the euro crisis. (Georgios Christidis, Secret Athens Report: Berlin Owes Greece Billions in WWII Reparations Spiegel International 04/08/2013; By Suzanne Daley, As Germans Push Austerity, Greeks Press Nazi-Era Claims New York Times 10/05/2013)

From Daley's report:

Prime Minister Antonis Samaras's government has compiled an 80-page report on reparations and a huge, never-repaid loan the nation was forced to make under Nazi occupation from 1941 to 1945.

Mr. Samaras has sent the report to Greece’s Legal Council of State, the agency that would build a legal case or handle settlement negotiations. But whether the government will press the issue with Germany remains unclear.

Some political analysts are doubtful that Athens will be willing to take on the Germans, who have provided more to the country’s bailout package than any other European nation.

Others, however, believe that the claims — particularly over the forced loan — could be an important bargaining chip in the months ahead as Greece and its creditors are expected to discuss ways to ease its enormous debt burden. Few here think it was an accident that details of the report were leaked to the Greek newspaper Real News on Sept. 22, the day that Germans went to the polls to hand a victory to Germany’s tough-talking chancellor, Angela Merkel.

"I can see a situation where it is politically difficult for the Germans to ease the terms for us," said one high-ranking Greek official, who did not want his name used because he was not authorized to speak on the issue. "So instead, they agree to pay back the occupation loan. Maybe it is easier to sell that to the German public."

Greece could also effectively achieve a debt haircut by refinancing its debt at much longer terms. (Mark Schieritz, Die Kosten des griechischen Schuldenschnitts Die Zeit Herdentrieb 09.10.2013) But Frau Fritz is unlikely to allow such a thing. (Update: But even if Frau Fritz allows such an approach, it doesn't solve the debt problem; it's not the same as a straightforward writedown of the debt.)

The SPD held a Party convention on Sunday (Oct. 20), which easily gave the leadership approval to continue with their negotiations to once again become a junior partner in a coalition with Frau Fritz. Hannelore Kraft, the Minister-President (Governor) of North Rhine-Westphalia state, was previously the most prominent public opponent of a Grand Coalition with Merkel's Christian Democrats (CDU), but she's on board with it now. There is a membership vote after the coalition deal is made that could throw in some new complications. But it will be pretty much a "done deal" - literally - by that time.

Both sides have to put up a pretense of hard negotiating in forming the coalition. Veit Medick and Philipp Wittrock, Coalition Face-Off: Tough Negotiations Lie Ahead Spiegel International 18.10.2013) But the fact that the SPD didn't even pretend to try to organize a majority coalition with the Greens and the Left Party means the SPD leaders have already decided to be toadies for Merkel the next four years, no matter what the needs of their clients or their ostensible partner nations in the EU or the eurozone.

The new Angie the Great Coalition would be a neoliberal wet dream. The conservatives and the social-democrats unite behind Merkel's nationalistic austerity policies and pretend that the whole EU project isn't already on the rocks. Columnist Ralph Bollmann in the conservative Frankfurter Allgemeine Zzeitung practically drools over how much fun it will be to watch the Sozis be willing patsies for Frau Fritz in a new Grand Coalition. (Was will die SPD in der Regierung? FAZ 20.10.2013)

What is stunning is that the perilous state of the EU is playing at best a minor role in the negotiations. The two sides in the coalition negotiations are arguing over ministerial posts, of course, and over tax increases, a national minimum wage (a worthy enough cause for sure, and, no, Germany doesn't currently have one) and numerous transactional-type issues. But the threatened collapse of the "European project" is evidently regarded by the leader of Merkel's CDU and the SPD with 1914 levels of arrogance, indifference and nationalist recklessness.

The SPD also seem untroubled by the prospects of the neoliberal Trans-Atlantic Free Trade Agreement (TAFTA) currently being negotiated between the EU and the US under high levels of secrecy. Well, in secrecy from the public and legislators, anyway. As we've known for a while now, the NSA is intercepting the EU's internal communications on their negotiating positions. So why not let the public in on it?

The anti-TAFTA group Seattle to Brussels Network (S2B) has issued a new report on the risks and problems of TAFTA A Brave New Transatlantic Partnership (October 2013).

Tags: angela merkel, austerity economics, eu, euro, european union, greece, italy, neoliberlism, spd, tafta, trans-atlantic free trade agreement