New government for Portugal

Portuguese President Aníbal Cavaco Silva has designated Socialist Party leader António Costa as Prime Minister (PS). (La hora de los socialistas en Portugal Página/12 24.11.2015; São José Almeida, Governo de combate político coloca Assuntos Europeus no MNE Público.pt 24.11.2015

Portugal's political turmoil set to end as Antonio Costa named prime minister Euronews 11/24/2015:

This means that the left majority of PS, the Left Bloc, and Communists is effectively taking power. The actual arrangement is that the Socialists are forming a minority government with the tolerance (as it's called in parliamentary systems) of the other left parties. That means they vote to support the government and Costa as Prime Minister, but don't get ministries.

Andrei Khalip and Axel Bugge report in Socialist Costa to head Portuguese government with uneasy far-left backing Reuters/Yahoo! News:

The Socialist Party (PS) has promised to end years of harsh austerity, increase families' disposable incomes and help the poor, who suffered during Portugal's debt crisis and a bailout that ended last year, while still cutting the deficit in line with Portugal's European commitments.

Together with the far-left Communists and Left Bloc, Costa two weeks ago toppled the minority centre-right coalition that had returned to power after winning most votes in an election on Oct. 4 but losing its overall majority.

Left Bloc deputy Marisa Matias is understandably optimistic about the present moment. She tells an interviewer, "A new Portugal is being born." (Maria João Lopes, “Há um Portugal novo que está a nascer” Público.pt 24.11.2015)

But getting António Costa as Prime Minister is scarcely the storming of the Bastille. Much less the Winter Palace.

The PS has previously supported the EU's (Merkel's) austerity policies in Portugal. It's heartening to see that they are now willing to attempt some kind of pushback. We'll see how it works out.

Portugal's new fight for democracy

As the left majority in the Portuguese Parliament continue to press its demand to form a government, I find myself thinking back to the acute phase of the Greek crisis earlier this year.

If the left majority takes power and seriously pushes back against the austerity measures, Angela Merkel's government is likely to retaliate. The ECB can bring enormous pressure on Portugal by withdrawing support from Portuguese banks in a similar way to what it did to coerce the Greek government into surrendering on austerity. Merkel also clearly wanted to punish the Greek voters for daring to vote against her Hebert Hoover/Heinrich Brüning austerity policy.

Since the attacks from Germany and the ECB forced a new election but returned Alexis Tsipras and his anti-austerity coalition back to power anyway, they may take a different approach with Portugal. But their pressure against Greece did force Tsipras to accept a continuation of the ruinous austerity program. So they have a tried-and-tested regime change model at hand.

The bottom line that we see from the Greek experience is that if Portugal is faced with a full-on coercive program in retaliation for election results that displeased Merkel, if they want to successfully push back, they have to be willing to risk being pushed out of the eurozone and go back to their own currency.

The Portuguese President Aníbal Cavaco Silva would obviously prefer to have the current conservative Prime Minister Pedro Passos Coelho continue in office. Despite the name of Passos' party, Social Democratic Party (PSD), the official social-democratic party and affiliate of the Socialist International is the Socialist Party (PS), which heads the majority left coalition that should be taking power now. Passos is trying to get the President to stall on allowing the left majority to create a government, claiming that it wouldn't be "stable." (Maria Lopes, Esquerda garante orçamento, direita quer que Presidente seja mais exigente com PS Público 20.11.2015)

Deputy Prime Minister Paulo Portas is the and head of the Christian Democratic CDS–People's Party (CDS-PP), the junior partner in the current and hopefully outgoing government. As Lopes reports:

[Portas] avisou, em tom de ameaça, que o Governo de esquerda “poderá ser matematicamente viável, poderá ser formalmente constitucional; será sempre politicamente ilegítimo e o CDS extrairá daí as consequências necessárias e suficientes”.

[{Portas} warned in a menacing tone that the government of the left "might be mathematically viable, might be formally constitutional; it will always be politically illegitimate and the CDS will then draw the necessary and sufficient consequences.]

Economist and former Greek Finance Minister Yanis Varoufakis is reserved about the approach of the Portuguese left coalition, as he explained to The World Weekly (Yanis Varoufakis’ ‘erratic’ Marxism 11/19/2015; also at Varoufakis' blog)

As the global financial crisis began in 2008, the eurozone was thrown into a sovereign debt crisis which engulfed not just Greece, but also Portugal, Ireland, Spain and Cyprus. The political impact of the crisis was swift. In many of these cases, the national governments moved to the right while once marginal forces became increasingly prominent. Much like in Greece, Portugal’s crisis to the emergence of a new progressive coalition led by the Socialist Party.

“The two countries, Greece and Portugal, are caught up in the same eurozone-wide crisis and both have been subjected to dead-end policies that have been portrayed as success stories (with the Portuguese one bathed in more adulatory light),” Dr. Varoufakis tells The World Weekly. “But there is a difference: last January, in Greece, our government was elected with a clear mandate to oppose these dead-end policies.”

“In Portugal this is not the case,” Dr. Varoufakis explains, “as the Socialist Party seems determined, even before forming government, to avoid challenging the basic logic of a failed policy agenda”. So the former Greek finance minister is not optimistic that the new coalition, which includes Greens and Communists, presents a sufficient challenge to austerity. It is important to note that the Socialist Party was the architect of the austerity measures as the crisis hit.

When asked if the Portuguese case represents any sign of social democracy resurging, Dr. Varoufakis does not mince his words. “Social democracy remains in tatters of its own making,” he says. “It has yet to articulate a valid criticism of its contribution to the eurozone’s terrible architecture as well as to the illogical manner in which Europe responded to the inevitable failures of that architecture.”

See also:

Stefan Schultz, Politische Krise in Portugal: Die Unsicherheit kehrt zurück Spiegel Online 11.11.2015. Schultz talks about the possible but constitutionally dubious option of the President calling for new elections immediately, or allowing the democratically elected left majority to form a government. He called it a "choice between the plague and cholera." But he also describes the "misery" that Merkel's austerity economics has brought to Portugal. And he notes that many Portuguese citizens find it "undemocratic" that the President would try to block the left majority from taking power. That's probably because it is undemocratic.

La actriz y el operario que están detrás del pacto de izquierda en Portugal Público 10.11.2015

Sérgio Aníbal, As chaves do debate difícil entre um governo PS e Bruxelas Público (Portugal) 11/11/2015

Syma Tariq, Portugal senses a chance for change after pro-austerity government is ousted The Guardian 11/11/2015

Catarina Martins in Women who conquered macho world of Portuguese politics prepare for power The Guardian 11/14/2015 notes:

Bloco de Esquerda, Portugal’s equivalent to Greece’s anti-austerity Syriza party, is a crucial element in a leftwing alliance which is set to deliver a socialist government. Its sudden rise is also the story of a remarkable turnaround in fortunes which, in a notoriously macho political culture, has been masterminded by four women: the Bloc’s leader, Catarina Martins, deputies Mortágua and her sister Mariana, and Euro-deputy Marisa Matias.

Lauren McCauley, Portugal Rejoices as Anti-Austerity Left Coalition Forms to Oust Right Wing Common Dreams 11/10/2015

Win for democracy, how will Merkel react?

The majority in the Portuguese Parliament on Tuesday staged a revolt against the minority government kept in office by the President in order to maintain the austerity policies insisted upon by Berlin.

As the BBC News Portugal's left-wing opposition topples minority government 11/10/2015 reports:

Portugal's government has been toppled less than two weeks after taking power after left-wing opponents rejected its programme in parliament.

A centre-right coalition won the most votes in October's election but lost its overall majority.

A new leftist bloc has now voted 123 to 107 against the administration's programme, prompting its collapse.

The move could lead to a new government led by the Socialist Party, likely to focus on alleviating austerity.

Deutsche Welle also reports on the parliamentary vote, In Portugal, left-wing opposition topples government in no-confidence vote 10.11.2015

If the leftist alliance forms a new government, it would be the first ruling coalition to include the Communists and the Left Bloc in the modern political history of Portugal. The country only returned to democracy in 1974, after decades of right-wing dictatorship.

Portugal's president, Anibal Cavaco Silvo, must first meet with party representatives before any change to the government can take place. Until then, the prime minister will remain in power.

Portugal requested a 78-billion-euro ($88-billion) bailout in 2011 and only left the scheme in May 2014, with the previous Coelho administration pushing through harsh budget cuts. ...

The opposition lawmakers intend to roll back tax cuts, as well as cuts in pay, pensions and public services. They also speculated about restoring several public holidays that were cut to boost productivity.

It remains to be seen if Angela Merkel's government will retaliate against the new majority bloc because they want to defy her austerity dictates.

Spiegel Online reports in Misstrauensvotum: Linke Opposition stürzt Portugals Regierung 10.11.2015 that between 2010 and 2014, the percentage of the government's budget dropped from over 11% of GDP to 4.5%. So while Portugal was hammered by the post-2008 depression in the eurozone periphery, it was also drastically withdrawing the stimulus provided by government spending. That's the Herbert Hoover austerity program on which Merkel's government insisted. It acted in a procyclical way, i.e., it made the depression worse.

Reminder of regime changes past

It really is remarkable how confident American policymakers still are about the American ability to stage "regime change" operations, despite their actual record. John Prados' Safe for Democracy: The Secret Wars of the CIA (2006) describes how bumbling many of them have been and how even the two postwar regime-change operations considered big successes at the time - in Iran and Guatemala - were successful in large part through dumb luck.

And, of course, we're still wrestling with the consequences of the "successful" regime change operation in Iran. President Obama's decision to lift the embargo against Cuba is also a recognition of how poorly our regime-change efforts in Cuba worked. Poorly, as in total failure in Cuba's case.

I was reading an interview with German writer and political activist Günter Grass, in which he mentions in passing the democratic revolution in Portugal of 1974. (Andrej Ivanji, Günter Grass: "Der dritte Weltkrieg hat begonnen" Der Standard 20.12.2014) Henry Kissinger was then Republican President Gerald Ford's Secretary of State. And as Grass reminds us, he regarded the revolution much as he regarded Salvador Allende's elected government in Chile and wanted to handle it the same way, i.e., to overthrow the democratic government and substitute and authoritarian dictatorship. As Grass says, Willy Brandt was then head of the Socialist International, the international organization of social-democratic parties, and the SI had much more significance as a leadership group than it does now. (It has very little at all now.) But, in Grass' account, Brandt in particular along with other social-democratic leaders, blocked Kissinger's regime-change aspirations for Portugal.

The American record on regime change hasn't improved much since 1974.

Pat Kennelly reports on the status of one of our more recent regime-change adventures in The Unspeakable in Afghanistan Truthout 12/21/2014:

2014 marks the deadliest year in Afghanistan for civilians, fighters, and foreigners. The situation has reached a new low as the myth of the Afghan state continues. Thirteen years into America’s longest war, the international community argues that Afghanistan is growing stronger, despite nearly all indicators suggesting otherwise. Most recently, the central government failed (again) to conduct fair and organized elections or demonstrate their sovereignty. Instead, John Kerry flew into the country and arranged new national leadership. The cameras rolled and a unity government was declared. Foreign leaders meeting in London decided on new aid packages and financing for the nascent ‘unity government.’ Within days, the United Nations helped broker a deal to keep foreign forces in the country, while simultaneously President Obama declared the war was ending—even as he increased the number of troops on the ground. In Afghanistan, President Ghani dissolved the cabinet and many people are speculating the 2015 parliamentary elections will be postponed.

While the exact role of the US in the change of regime in Ukraine earlier this year is contested, it's very clear from what's in the public record that neocon US Ambassador to Ukraine Victoria Nuland and the neocon-run and Congressionally funded National Endowment for Democracy (NED) were actively and recklessly working for regime change against the elected pro-Russian government that was overthrown by the rebellion earlier this year. (See for instance: Angela Merkel: Victoria Nuland's remarks on EU are unacceptable; Ukraine crisis: Transcript of leak1ed Nuland-Pyatt call BBC News 02/07/2014; Ed Pilkington and Luke Harding, Guardian 02/07/2014)

The Institute for Policy Studies' Right Web information page on the NED (updated 03/02/2014) includes the following:

The National Endowment for Democracy (NED) was created by the Reagan administration in the early 1980s to push democratic reforms and roll back Soviet influence in various parts of the globe. In his 1983 speech inaugurating NED, President Ronald Reagan said: "I just decided that this nation, with its heritage of Yankee traders, ought to do a little selling of the principles of democracy."[Ronald Reagan, "Remarks at a White House Ceremony Inaugurating the National Endowment for Democracy" NED, 12/16/1983]

The private, congressionally funded NED has been a controversial tool in U.S. foreign policy because of its support of efforts to overthrow foreign governments. As the writers Jonah Gindin and Kirsten Weld remarked in the January/February 2007 NACLA Report on the Americas: "Since [1983], the NED and other democracy-promoting governmental and nongovernmental institutions have intervened successfully on behalf of 'democracy'—actually a very particular form of low-intensity democracy chained to pro-market economics—in countries from Nicaragua to the Philippines, Ukraine to Haiti, overturning unfriendly 'authoritarian' governments (many of which the United States had previously supported) and replacing them with handpicked pro-market allies."[Jonah Gindin and Kirsten Weld, "Benevolence or Intervention? Spotlighting U.S. Soft Power" NACLA Report on the Americas Jan/Feb 2007] ...

Allen Weinstein, a member of the U.S. Agency for International Development (USAID) working group known as the Democracy Group, which first proposed the formation of a quasi-governmental group to channel U.S. political aid, served as NED's acting president during its first year. Talking about the role of NED, Weinstein told the Washington Post in 1991 that "a lot of what we do today was done covertly 25 years ago by the CIA."[David Ignatius, "Innocence Abroad: The New World of Spyless Coups" Washington Post 09/22/1991 September 22, 1991]

Austericide in the eurozone

Clive Crook has a decent description of the effect of German Chancellor Angela Merkel's austericide eocnomic policies in the eurozone, Euro Illusions Force Weaker Nations Into High Unemployment Bloomberg Businessweek 05/15/2014, a more descriptive title than it bear in the print edition, where it appears simply as "Euro Illusions."

He makes a good observation about Merkel's call for "more Europe" as a solution to the eurozone's economic problems. As Crook says accurately, the kind of "more Europe" the currency zone actually needs are "a true banking union and fiscal flows across the EU comparable to those across the U.S., as well as longer-term measures to integrate the union’s labor markets." But that's obviously not what Angie has in mind: "By 'more Europe,' Merkel meant tighter restrictions on the ability of EU members to borrow, not greater cooperation in using fiscal policy to fight unemployment."

At Germany’s urging, the EU has therefore been forced to adopt an austerity-first stance. Italy and others have little choice but to squeeze public spending, since the recession has left them with insupportable public debts. The chances of a coordinated EU fiscal policy to relieve that pressure — for instance, by creating eurobonds backed by euro-area governments acting in concert — now seem close to nil. Excessive fiscal conservatism has aggravated the deflationary effects of an unduly passive monetary posture. [my emphasis]

Which means the prospects for the eurozone countries is increasingly grim.

Crook does profess more faith in the power of monetary policy than its actual historical results would seem to warrant when he writes, "In a single-currency system, policymakers lack the most powerful tool for helping individual economies adjust to setbacks: interest rates set according to national conditions." At best that is confusing. A fully-empowered central bank, with the ability to directly backstop national debt instruments and a mandate to combat unemployment as well as inflation control could have contributed more than the ECB actually has done to prevent the current prolonged depression in the eurozone.

But in depression, the ability of monetary policy to do anything much to stimulate the economy is highly doubtful. That's so in prosperous times, too, though the mystic faith in the power of central banks that is so widespread is hard to shake.

And Crook himself continues directly:

To succeed, a single-currency system needs either large fiscal transfers (so fiscal policy can do what monetary policy can't) or highly integrated labor markets (so the unemployed can move to stronger markets to find work), and preferably both. The euro area has neither, and its governments, even after an epic sovereign debt crisis, have no plans to do much about it. This leaves the EU's weakest economies with no choice but to restore their prospects through the brutality of "internal devaluation" — using high unemployment to force down labor costs [my emphasis].

Recently, there has a been a bit of a stock market bubble for European stocks. And even though the profitability of individual corporations is in many cases increasingly independent of the general prosperity in their home countries, the fundamentals aren't promising.

The eurozone appears to already be in a lowflation/deflation trap. Crook writes:

Inflation in the euro area stands at 0.7 percent, far below the European Central Bank's target of "less than but close to 2 percent." Next year the commission expects it to be 1.2 percent. Very low inflation maintains tight financial conditions by keeping real (inflation-adjusted) interest rates higher than they otherwise would be. Outright deflation would worsen that problem and further compound it by adding to the real burden of debt. The result would be prolonged economic stagnation and greater financial fragility.

And the human cost of all this is staggering:

The countries at the center of the crisis — Greece, Ireland, Portugal, and Spain — have all made heroic efforts to improve their competitiveness in the past four years, but they have more work to do. Meanwhile, their unemployment rates are 26 percent, 11 percent, 15 percent, and 26 percent, respectively. The commission expects little improvement in 2015. Two of the euro zone’s biggest economies, France and Italy, are in deep trouble as well, with unemployment above 10 percent and growth in 2014 expected to be 1 percent or less.

I normally include Cyprus and Italy in that list of "countries at the center of the crisis."

But it's also important to keep in mind that the eurozone is one economy. Despite Merkel's nationalistic policies that have spared Germany the most severe effects of her austericide policies, it's not at all immune from the economic and political effects of the crisis. Yanis Varoufakis discusses this in the appropriately titled presentation, Depression in Europe with @yanisvaroufakis 05/11/2014 - YV at his blog calls it Depressed, depressing Europe:

Portugal has officially exited the Troika program to clean up its debt situation. (Oscar Tomasi/EFE, Portugal dice adiós a la Troika, pero los ajustes y reformas continúan 17.05.2014) But under the current policies of the Merkel-dominated eurozone, they have to continue with suicidal, pro-cyclical economic policies, "pro-cyclical" in the current lowflation-deflation/depression conditions meaning policies making the depression worse. And the current conservative government under Prime Minister Pedro Passos Coelho shows no inclination to challenge continuing austericide. (Coelho's conservative party is the Social Democratic Party, PSD; the actual social-democratic party that is a member of the Socialist International in Portugal is called the Socialist Party, PS.)

Alison Roberts reports for BBC News in an article bearing the optimistic title, Portugal's economy: Two steps forward, one step back 05/16/2014:

The latest economic indicators have, however, somewhat tarnished the image of a country that has left the crisis behind.

Portugal's economic output, or gross domestic product (GDP) shrank 0.7% in the first quarter, even as euro-zone GDP swelled by just 0.2%, according to figures from Eurostat, the EU's statistical unit.

Recovery had appeared to be well under way, with the country's economy growing since the second quarter of 2013, when Portugal had the fastest growth in the EU.

Exports have been the main engine of that growth, and it was the fact that they faltered - indeed fell - in the first quarter of 2014 that send the economy into reverse.

And the human cost, of little interest to the devotees of the neoliberal faith, are huge:

Portugal's jobless rate has been falling very gradually, but at 15.2% it is still twice the level of a decade ago, and youth unemployment actually rose slightly in March - to a shocking 35.4%.

As for the kind of risk that worries investors, international ratings agencies have of late been making positive noises about the outlook for Portugal, but all still rate its sovereign debt as "junk".

While its bond yields are at their lowest levels in years, that is in part because of investors' frantic search for decent returns - and the famously reassuring words back in 2012 of the European Central Bank's president, Mario Draghi, that it would do "whatever it takes" to ensure the euro's survival.

Economist[s] differ on whether Portugal's debt mountain - which the government says will peak this year at 127.5% of GDP - is sustainable.

But they do agree that the country's ability to bear and ultimately reduce this burden will depend on the future pace of economic growth.

Actually, that level of debt is not sustainable, unless the Portuguese voters are really ready to endure another decade or more of serious economic depression.

Stefan Schultz also writes on Portugals soziale Krise: Millionenfaches Elend Spiegel Online 17.05.2014: " 2,5 Millionen Portugiesen leben in Armut oder an der Armutsgrenze, das entspricht rund einem Viertel der Bevölkerung." (2.5 million Portuguese live in poverty or on the border of poverty; that includes around a quarter of the population.") He also notes that 80% of retirees receive less than the minimum wage.

Schhultz also refers to a group called Projecto Troika, a group of artists who attempt to record and display the human face of the vicious austericide policies.

Once again: heckuva job, Angie, heckuva job!

Tags: angela merkel, austerity economics, eu, euro, european union, neoliberalism, portugal

Grand Coalition governing agreement reached in Germany

German Chancellor Angela "Frau Fritz" Merkel and her CSU/CDU party have negotiated a coalition deal with the Social Democratic Party (SPD), chaired by Sigmar Gabriel. (Deal reached on new government for Germany under Merkel BBC News 11/27/213) A CDU/CSU/SPD coalition is known as a Grand Coalition. This would be the second Grand Coalition with the SPD that Frau Fritz has headed. The SPD base still has to approve of it in a referendum.

Klaus Stuttmann in this 26.11.2013 cartoon catches the political essence of the deal very well:

That's Angie, of course, as the crocodile and SPD Chairman Sigmar Gabriel celebrating being dinner.

The official coalition agreement just concluded, Deutschlands Zukunft gestalten, deals with EU issues in Chapter 6, 12 out of 185 pages. Basically, the SPD agreed to support Angie's catastrophic austerity policies for the eurozone and the EU, which they backed in Parliament anyway when they were a nominally opposition party.

"Das europäische Einigungswerk bleibt die wichtigste Aufgabe Deutschlands," it says. ("The work of European unity remains Germany's most important task.") I guess we can give them credit for a dark sense of humor, since the austerity policies are wrecking the prospects for the continued existence of the euro and the EU.

This is the key element of the Grand Coalition's eurozone policy (p. 157):

Damit Europa dauerhaft einen Weg aus der Krise findet, ist ein umfassender politischer Ansatz erforderlich, der Strukturreformen für mehr Wettbewerbsfähigkeit und eine strikte, nachhaltige Haushaltskonsolidierung mit Zukunftsinvestitionen in Wachstum und Beschäftigung in sozial ausgewogener Weise verbindet.

[So that Europe can find an enduring way out of the crisis, a comprehensive political approach is necessary, one that binds structural reforms for more competitiveness and a strict, enduring consolidation of budget with future-oriented investments in growth and employment in a socially equitable manner.]

Short version: austerity and more austerity, austerity in good times, austerity in bad times.

Meanwhile, Portugal is imposing new austerity measures. Spain's economy continues to stall. The EU is pressing for new austerity measures in Greece, where the OECD is predicting debt-to-GDP ratios of 160% or more until 2020, far beyond what is considered sustainable, and even farther beyond the 60% EU Fiscal (Suicide) Pact requires. The Very Serious People have declared Ireland a success story for austerity (again!) based on pretty much nothing but the declaration itself.

This will not end well.

There may be some hope in the fact that the SPD has agreed to a referendum among the SPD base before the final approval on the coalition pact. (Mitgliederbefragung: SPD-Basis muckt gegen Große Koalition auf Spiegel Online 24.11.2013) The party leaders will of course bring tremendous pressure for a "yes" vote. But rejection is a possibility.

Tags: angela merkel, austerity economics, eu, euro, european union, greece, ireland, portugal, spain

Galbraith on Greece and the (maybe short) future of the euro

Yanis Varoufakis provides the text of an interview with economist Jamie Galbraith: James Galbraith on Europe, Greece (and Syriza), Germany and America 07/31/2013, which also appears here (both in English), James Galbraith im Gespräch NachDenkSeiten 31.07.2013.

The interview is interesting in a number of ways. Here I want to quote from his comments on Greece, Germany and the sad state of crisis management in the EU. Despite the creative praise that some of her press fans have managed to find in German Chancellor Angela "Frau Fritz" Merkel's crisis-management style, Galbraith points out how high-risk and reckless it really is:

[JG:] The first necessity is to stabilize the patient, who is on the verge of collapse. This is not about stimulus, it’s not about returning to growth, or returning to full employment, this is about preventing a disaster which will lead to the breakup of the Euro Zone and the European Union, and will lead in that direction in my view quite soon if nothing is done. So that’s what I’ve been talking about over the last month. ...

JG: I think that ultimately the decision on the future of Europe will be made in Germany, and Germany has to decide, does it want it or not? If it wants it, it has to take minimal steps to stabilize it on the same principles on which they stabilized the East, and on which they built the Federal Republic in the first place. And if they don’t want it, well, it will go away.

RS: I think even if they want it, they’re not going to stabilize it.

JG: In which case they’ll lose it, and then we can see what is left. But when it’s lost, Germany’s going to have the problem it had before of an appreciating currency, and an industry that quickly loses competitiveness, and there’ll be higher unemployment. And its markets will have collapsed and its debts won’t get paid.

Germany is not going to escape the consequences of this. Again, it’s a choice that Germans can, and I’m sure, will make. But what is necessary is to state clearly what the choice actually is. ...

RS: It’s an ideology, and public opinion here as represented in the media is that the rest of Europe should become more like Germany.

JG: It’s fair to characterize how the media represent things, but an underlying fact is that the German Federal Republic was built in the postwar years on social democratic principles, and I imagine a large part of the German population still shares those principles.

RS: Very much so.

JG: The German trade unions, with whom I have good relations, have, I think, staked out one of the most progressive positions, and I think they are in Europe the force that’s most alive in northern Europe to the conditions outside the core countries. So if there is going to be a rescuing of the European project, it will be here. I’m confident it will not come from France, and the other countries of the north are too small. So there it is. It’s Germany or nobody to make a change of ideas and policies.

RS: Well, the opinion leaders, as we might call them, are going to have to change their rhetoric before that’s going to happen, because they’re still very much in the other direction.

JG: I agree. Or new opinion leaders need to emerge with a different rhetoric, so there you are.

He also discusses who the level of real despair and political anger in Greece are likely to force what could turn out to be the unraveling of the euro and the EU:

The Portuguese situation is very serious, but my sense, and I wasn’t there for very long, my sense is that the social stress is not as serious as in Greece. What will happen, is if the place is going to break, I think it will be Greece first, and that the problem after that, the immediate problem is not the same kind of social breakdown in Portugal, or Spain, for that matter, but that the speculative attack on those countries becomes overwhelming. You get a bank run, in other words.

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

More on the eurozone and the need for stimulus

In the previous post, I neglected to mention that Simon Wren-Lewis provides a longer version of his argument cited in his post I discussed. It's his paper, Macroeconomic Stabilisation in the Eurozone: Lessons from Failure Global Policy 4/Supp 1 (July 2013). There he explains the basic macroeconomic dilemma of a currency union this way:

The macroeconomics is straightforward. For example, if an individual country in a monetary union experiences a positive demand shock that is not shared by the other members, not only will its output increase but inflation will rise relative to other union members and it will become uncompetitive. Eventually, this decline in competitiveness will itself reduce demand, but this process may take time. More seriously, to restore competitiveness inflation will have to be below that in other union members for a period, and to achieve this a recession may well be required. There is, of course, no option to regain competitiveness through devaluation. So the country that experiences this idiosyncratic demand shock suffers first from excess inflation, and then from the period of below-normal activity required to reduce inflation and restore competitiveness.

Fiscal policy can reduce these costs. By tightening fiscal policy following the demand shock, the initial increase in inflation, and therefore the subsequent need for correction, will be reduced. Note that a quick response is important here (particularly given institutional lags in fiscal policy). The aim is to reduce demand during the early stages of a boom, when the self-correcting influence of competitiveness is weak. In the later stages, where a country has become significantly uncompetitive, this deflationary force may be sufficient in itself and help from fiscal policy may not be required. [my emphasis]

What happened in the case of the eurozone, in which capital moves freely from country to country in a primary tenet of the neoliberal faith, capital could move into countries like Spain and create a housing bubble. But then when the Lesser Depression hit Europe in 2008, there was no quick adjustment measure to counteract its macroeconomic effects. The balance within the currency zone is restored under the (not-so-)invisible hand of the normal functioning of a currency union. But if fiscal policy in the currency union as a whole isn't stimulating new growth, then the adjustment has to take place by real deflation in the countries that have become less competitive. But this condemns Cyprus, Greece, Ireland, Italy, Portugal and Spain to years of stagnation or depression, possibly decades.

As he explains, the original Stability and Growth Pact (SGP) setting the rules for the eurozone was heavily biased toward notg "allowing governments to adjust fiscal policy for stabilisation purposes," i.e., heavily biased against Keynesian countercyclical spending in a recession. The Fiscal Suicide Pact (aka, Fiscal Compact) adopted in 2012 takes that bias to a new extreme.

In practice, the neglect of fiscal policy not only applied in recessions but in the boom time, as well. Wren-Lewis argues that Ireland, Portugal and Spain in particular needed countercyclical fiscal policies in 2000-7 to restrain the speculative boom. Wren-Lewis doesn't stress it here, but the EU rules on the free movement of capital would have created problems for such policies, which is not to say that it would have completely neutralized them. In any case, "the loss of competitiveness that most
countries had accumulated relative to Germany would have presented a major challenge even without a global recession."

The following is is a vital point that has been obscured by the political rhetoric about fiscal propriety in both the US and Germany:

The recession had a more important contributory role to the problem of debt discipline. This was not only the familiar point that deficits increase in a recession. In Ireland, and subsequently in Spain, the state chose to bail out failing banks, which had become insolvent as a result of imprudent lending in the boom years. For these two countries at least, what had started as a problem of macroeconomic imbalance was transformed into a problem of excessive government debt. Furthermore, the need for subdued growth in these countries as part of the competiveness-adjustment process meant that these countries could not grow their way out of their debt problem.

Ireland and Spain did not have debt problems prior to the crisis. And their bank-friendly approach to the financial crisis was the biggest immediate factor in creating theirs. "In the case of Spain and Ireland, it was largely a banking crisis caused by excess demand that led to a debt crisis, something that the SGP did nothing to prevent."

Here is how he describes Angela Merkel's muddling-along approach to the Greek debt crisis, which allowed what should have been a relatively easily-managed problem into a existential crisis for the euro that continues:

The initial response of policy makers was a triumph of hope over judgement. There was a reluctance to contemplate the idea that a eurozone government might default, perhaps because of fears that this would raise interest rates for other vulnerable countries. (Rather less charitably, default would also have meant significant losses for banks in these other eurozone countries.) Monetary affairs commissioner Joaquin Almunia is reported as saying 'no, Greece will not default. Please. In the euro area, the default does not exist'. As a result, private-sector holdings of Greek debt were gradually replaced by loans from the ECB, IMF and other eurozone governments. These loans came with strict conditions, which involved substantial fiscal retrenchment. [my emphasis]

Plus, the Confidence Fairy never arrived: "The idea that cutting government deficits would increase demand by adding to confidence has proved illusionary."

Wren-Lewis makes clear he sees the current solution in a return to national fiscal stimulus policies. He's highly skeptical of the ability of the central EU bodies to handle it, both because of their current lack of democratic legitimacy and because "the recent crisis has shown clearly how poor decision making can be at the eurozone level, in part because of the lack of direct accountability." I don't know if that is meant to be a euphemism for saying that as long as Angela Merkel is calling the shots, the results will be a mess.

Tags: angela merkel, austerity economics, eu, euro, european union, greece, ireland, portugal

Saving the eurozone, a desperate undertaking

Sony Kapoor and his fellow associates at the Re-Define think tank have been offering constructive analyses of the eurozone's problems from a pro-Europe but non-"austerian" viewpoint. Kapoor in A Eurozone-wide IMF programme could save both 07/12/2013 encourages the eurozone leaders - of whom the chief is German Chancelor Angela "Frau Fritz" Merkel - to learn some constructive lessons from the IMF's recent reflections on the, uh, inadequacy of the austerity policies currently strangling the economies of Cyprus, Greece, Ireland, Italy, Portugal and Spain.

In this Yannis Ioannou cartoon of 07/07/2013, Angela Merkel and her Finance Minister Wolfgang Schäuble rush to provide more assistance to their Success Stories Portugal and Greece, their graves already dug, just waiting for the dirt to be piled on top of them

As Kapoor observes, "Recent commentary that 'the Eurocrisis is back' is not accurate; the crisis had never gone away."

And it's bad:

The Eurozone is now stuck in a death spiral, as the failure to clean our banking system combines with unduly harsh austerity to choke the real economy. The record-high and still rising level of unemployment, collapse of investments and dismal growth prospects have shrunk political space and endangered the social fabric in crisis economies. A continuation of flawed current policies expounded by the European Commission, the ECB and perhaps most of all, Germany, will almost surely take us over the brink. The question is no longer whether the next acute crisis will come, but more what form will it take. Financial problems can be addressed, for example, by flooding the system with liquidity, but political and social breakdown would be impossible to reverse.

Kapoor reminds us, "Before the crisis, the IMF had come to be seen as a pariah by the developing world, but it appears to have learnt lessons from past follies." But since 2009, the IMF's inclinations for dealing with the debt crises have tended to be more realistic, less draconian and therefore less destructive than those preferred by the Troika (IMF, ECB, EU Commission), which is dancing to the tune dictated by Merkel. That's not so much a recommendation of the wisdom of the IMF as it is a measure of the extreme folly of Angie-nomics and her austerity demands stemming from her stone-conservative economic outlook of "ordoliberalism."

Kapoor envisions the IMF as taking a lead role in pushing the ECB and the EU (more precisely: Angela Merkel and Germany) to taking a constructive rather than destructive role:

The failure to agree Europe-wide mechanisms for capitalising banks thus far, or providing funding guarantees to the banking system made sense for certain Member States, but was disastrous collectively. The harmful delay in the restructuring of Greek debt and EU leaders' insistence on self-defeating harsh austerity measures also fall in the same category. Having the IMF in-charge would mean fewer collective action problems. A system-wide view of the crisis, which only the IMF can bring from outside, would be invaluable.

As discussed above, an IMF programme would also bring a reversal of fiscal tightening, a more coherent approach to bank restructuring and a sharper focus on growth-enhancing structural reforms in product and service markets. Importantly, this would happen not just in crisis economies, but also in countries such as Germany, the Netherlands and France, with positive spill-overs for the rest of the Eurozone.

The European Commission, the European Investment Bank and the ECB would be natural counterparts for the IMF providing fiscal, investment and monetary support respectively to facilitate necessary adjustments.

Given the hardnosed determination that Merkel has shown so far to force the victim countries to stick with pro-cyclical austerity, and given the rank nationalism that she and also her SPD competitors (and aspiring Grand Coalition partners) have promoted throughout this crisis, this proposal has a definite air of desperation. But those who genuinely want to see a democratic EU survive Merkel and her Ordoliberalism, they have to try to push movement in that direction.

But given the current corrupted vocabulary, i.e, neoliberal doubletalk, I'm not sure what Kapoor means by " a sharper focus on growth-enhancing structural reforms in product and service markets." Merkel and her minions have turned the word "reform" into a synonym for deregulation, financialization, weakening of unions, reduction of incomes for the majority, privatization and drastic cutbacks in public services. Since the Re-Define crew seem much more oriented toward actual growth policies, Kapoor may well mean Keynesian reforms, New Deal-type reforms, democratic reforms. But we need to read everyone's lips closely when they talk about "reforms" in the eurozone context, especially when the word "market" appears in its vicinity.

How far Merkel's government is from moving urgently forward on necessary reforms that would actually have a chance to save the eurozone is illustrated in this piece by Derek Scally from the Irish Times, Proposals for single banking resolution rest on 'shaky foundations' 07/12/2013. Loyal as they are to Germany's One Percent and Merkel's dogma of Ordoliberalism, she and her Finance Minister Wolfgang Schäuble are opposing the eurozone banking union to which they have agreed in general principle, mostly immediately because the are striking a nationalistic posture for the September elections:

German officials complain that, by bedding the proposals down in European common market law, Brussels is trying to establish a competence for which it has no legal entitlement.

Sooner or later this "competence hijack", as they put it, will be challenged in court - with unpredictable consequences - by the losers of any bank wind-up.

Berlin wants bank wind-ups to be overseen by a network of national authorities until member states agree a limited treaty change to give Brussels an explicit competence in this area. ...

He supported the idea of a mutualised EU bank wind-up fund but warned against expecting European taxpayers to cover the cost of struggling banks while the common fund was filled with the proceeds of bank levies.”

“We don’t want that Europe decides and the member states pay,” he said, urging responsibility and liability to remain in one hand. “That is our obligation to national parliaments.” ...

Yesterday Stephan Götzl, president of Germany’s regional bank association, attacked the single resolution plan and common fund as an "enabling act" - a term with historical associations to the Nazi takeover of 1933. [my emphasis]

Wasn't it not so long ago than respectable Germans, including bank lobbyists, pretended to be "good Europeans"? Now this bankers' lobbyist calls the eurozone banking union a Nazi-like idea? The "good European" talk seems to be pretty dispensable for the German One Percent.

Kapoor's diagnosis of the eurozone's problems is in line with that in this "Charlemagne" article he cites, Lessons from Lagarde The Economist (dated 07/13/2013)

The fund forecasts a deeper-than-expected recession in the euro zone this year, and slow growth in 2014. Disruptive Greece is again falling behind in its reforms, particularly in its promise to cull thousands of civil servants, and will doubtless need another debt write-off. Better-behaved Portugal saw bond yields spike after the abrupt resignation of the finance minister, Vítor Gaspar, and may need a second bail-out. Slow-learning Italy was marked down by a credit-rating agency this week, helping to push the euro lower against the dollar. Even the overachieving German prefect saw a sharp drop in exports.

When so many students are failing, it is fair to ask whether the fault lies with the school itself. Is it time to put the euro zone as a whole under a remedial programme? The idea has circulated in various forms, though it runs into legal and practical problems. The euro zone is not a member of the IMF, so cannot borrow money or be placed in a programme. In any case, European institutions are not directly responsible for most aspects of economic policy-making, including taxes and spending.

Even to suggest the idea as an intellectual exercise highlights the failings of the Europeans. The euro zone does not have a balance-of-payments crisis (it enjoys a current-account surplus). Nor does it have a debt-repayment problem. Overall its deficit and public debt are lower than America’s. The euro zone’s biggest problems are all internal. [my emphasis]

And the biggest single one of those problems is called, "Angela Merkel."

Tags: angela merkel, austerity economics, eu, euro, european union, greece, neoliberalism, imf, portugal

If the center-left disappears in the EU ...

It could be that if the center-left parties in Europe and the US become enough like the conservative parties, that people will stop voting for the conservative party because they are so happy that now the once-center-left parties can't be easily distinguished between the center-right parties. Unless, say the conservative policies advocated and implemented by the once-center-left parties works out badly, and the voters decide they prefer the center-right.

In this 05/03/2013 cartoon from Yannis Ioannou, Angela "Frau Fritz" Merkel (Deus Merkel) and her archangel Wolf (Finance Minister Schäuble) lord it over the mere mortals of the eurozone

The European social-democratic parties seem determined to give that option an extensive test.

Here's Juan Fernando López Aguilar, the President of the Spanish delegation of the social-democratic party (PSOE) wringing his hands over the fact that some parties are actually protesting the destructive effects of the austerity policies that are devastating a number of EU countries, Spain very much among them. From Beppe Grillo resucita a Berlusconi Huffington Post España 03.05.2013:

A un año de distancia de las próximas elecciones europeas, fines de mayo de 2014, se intensifican las señales de alarma que las anuncian minadas por el espectro del antieuropeísmo, cualquiera que sea su ropaje: nacionalismo, xenofobia, nueva extrema derecha y populismos eurófobos.

[A year away from the next European elections at the end of May 2014, the alarm signals are becoming more intense that announce undermining by the specter of anti-Europeanism {i..e, opposition to the EU}, whatever its guise may be: nationalism, xenophobia, new extreme right and europhobic populisms.]

Are you kidding me? The distrust of the EU in Spain is up north of 70%, and this is all the opposition party has?

French President François Hollande's Socialist Party celebrates it first year since the victorious election of May 6, 2012. And his popularity has plummeted. He got elected promising to defy the austerity policy of German Chancellor Angela "Frau Fritz" Merkel, and embraced it almost as quickly as he was sworn in. Then he got into a war in Mali.

Reuters titled a story of French protests against austerity, Far-left protesters reject austerity on Hollande anniversary by Muriel Boselli 05/05/2013. But in fact, Hollande's center-left Socialist Party got elected by a majority just one year ago on opposing austerity. Boselli reports, "With France on the edge of recession, unemployment at an all-time high and euro zone partners pressing him to cut the budget deficit, Hollande has suffered the sharpest fall in popularity of any president in more than half a century." So it's not just the "far left" that's unhappy. (See also: Stefan Simons, Proteste gegen Präsident Hollande: Enttäuschung, Frust, Wut Spiegel Online 05.05.2013)

From the headline of this article, I learned a new word for austerity policies in the middle of a depression, "austericide", El 'austericidio' ya afecta a todos: Europa se contraerá un 0,4% en 2013 Público 03.05.2013. The article is about the latest EU projections for growth this year. Negative growth, that is. They are now projecting a 0.1% GDP drop for the EU as a whole, 0.4% for the eurozone and 1.5% in Spain, which is already experiencing the highest unemployment in its history.

English News Today reports, 'EU economic growth not just around the corner' 05/05/2013:

Duetsche Welle English's report, Report predicts crisis in eurozone will deepen 05/03/2013

In face of the catastrophically bad results of continued austerity, EU leaders and their master, Frau Fritz, appear to be in a circle-the-wagons mood. EU Commission President José Manuel Barroso, a former conservative Prime Minister of Portugal, last week said in public that austerity along wasn't going to solve the problem, and was immediately blasted by German allies of Frau Fritz. In an interview with Die Welt, he enacted the ritual familiar to Americans who have seen Republican officials or Members of Congress criticize chief Party ideologue Russ Limbaugh and then abjectly repent in public a day or two later. (Florian Eder et al, "Merkel versteht am besten, was gerade in Europa passiert" 04.05.2013)

It's an open question in my mind still whether Frau Fritz sees herself more as Leonid Breshven directing the Warsaw Pact or as meaner version of Helmut Kohl absorbing East Germany after the fall of the Communist regime. But having grown up and made the first (non-political) part of her career in East Germany, she must have reoognized - and no doubt appreciated - the tone of the repentant heretic in Borroso's Welt interview. No one understands the problems of today's Europe in as insightful and unselfish a way as Frau Fritz, to hear Borroso tell it. And Frau Fritz, with her deep and perceptive insight into the scientific principles of Marxism-Leninism Ordoliberalism, has brilliantly defined the nature of the present world situation from the standpoint of the working class One Percent.

Borroso actually said, "Es ist nicht Frau Fritz' Merkels oder Deutschlands Schuld, was in Frankreich oder Portugal passiert. Jeder sollte vor seiner eigenen Türe kehren, da gibt es genug zu tun. Es ist völlig unfair, Maßnahmen als Zwang eines einzelnen Landes oder einer Institution darzustellen." ("It is not Frau Fritz' Merkel's or Germany's fault what happens in France or Portugal. Everyone should put their own house in order, that enough to do. It is completely unfair to represent {austerity} measures as pressure from one single country or a single institution.")

He made a similar statement to Bloomberg Businessweek's Diane Brady in European Commission President José Barroso on His Job's Challenges 04/18/2013. "We have a problem of leadership," he said. But he didn't mean that the problem was his own or Frau Fritz' leaderhsip:

We need leaders who can tell their people, "Our problems were not created because of what others are doing. It’s because of past mistakes in our own country." You have to have the courage to explain that to your own people. There is a tendency to Europeanize the problems and to nationalize the successes. When things are going well, it reflects my merit as a prime minister or minister. When things go badly, it's the fault of those guys in Brussels. I believe that’s holding us back from making faster changes.

Maybe one day, not so long away, someone can do a monument to the former European Union in the shape of a giant tombstone and right that on it.

Here's Valentí Puig singing the same song in Regeneración o antipolítica El País 04.05.2013

Meanwhile, there's this. Lucía Abellán y Alejandro Bolaños, La Comisión Europea empeora la previsión económica de Rajoy para 2013 El País 03.05.2013

And next door in Portugal, more austericide! Portugal se aprieta más el cinturón y despedirá a 30.000 funcionarios Público 03.05.2013. Euronews reports on the ugly news in Portuguese PM looks for unity over austerity cuts 05/04/2013:

He called for unity. Good luck with that!

Heckuva job, Frau Fritz! Heckuva job! Boaventura de Sousa Santos in El Diktat alemán Público 03.05.2013 provides a more reality-based view. He relates how German Finance Minister Wolfgang Schäuble recently told US Treasure Secretary Jacob Lew that there was no contradiction between austerity policies and growth, and that we should just forget about such a false debate. This is even more delusional than EC President Barroso said in the Businessweek interview quoted above, "The existential crisis regarding the euro is behind us." We seem to be look at some big-time denial of basic economic realities here.

Sousa Santos describes the current Diktat from Frau Fritz as national-authoritarian on Germany's part, an accurate description. And he says that finding politically viable alternatives to it is "el mayor desafío que hoy han de afrontar las sociedades europeas" ("the greatest challenge that European societies have to confront today.") Now, he's really reaching when he traces Frau Fritz' tendencies toward authoritarian rule in the eurozone to the philosopher Johann Gottlieb Fichte (1762-1814). Der alte Fritz himself would be a more plausible predecessor if we're going back that far.

But he's right in saying that "es preocupante comprobar que el poder económico alemán se ha convertido en una fuente de ortodoxia europea que beneficia unilateralmente a Alemania, en contra de lo que quieren hacer creer" ("it's disturbing to realize that the German economic power has been converted into a source of European orthodoxy that benefits Germany unilaterally, in contrast to what it would have us believe.")

As Wolfgang Münchau notes, Frau Fritz' dogmatic adherence to austerity economics even seems to hold in the face of the current weakening economic condition of Germany itself. (Die letzte Waffe der EZB Spiegel Online 01.05.2013) The ECB just lowered interest rates in face of the weakening conditions in the EU and the eurozone, setting off silly but predictable howls of impending inflationary dangerous from the defenders of austericide policies. But with interest rates already up against the zero lower bound, the ECB's ability to stimuluate much if any economic activity by lower interest rates is doubtful in the extreme. For the same reason, the inflation fears are spurious. But the only other way to stimulate the eurozone economies is for Germany in particular to pursue expansionary fiscal policy in the form of higher government spending. Instead, Frau Fritz, supported by the main opposition parties the SPD and the Greens, is sticking to austericide.

Frau Fritz is obviously happy representing the interest of the European One Percent at the expense of everyone else. If the supposedly center-left parties in the EU want to represent any wider public than the One Percent, they'd better get it together soon and start doing so aggressively. Because even uglier advocates of One Percent rule are working hard on figuring out how to take advantage the misery that the German austerity Diktat is causing. So are more unapologetically left groups, some of whom probably will do a much better job of representing the majority interest than most of the EU social-democratic parties have done so far in this depression. The social-democratic parties could find themselves in the state of their sister party PASOK in Greece, which has collaborated its way to near-nonexistence already.

Tags: angela merkel, austerity economics, eu, euro, european union, france, françois hollande, greece, portugal, spain

New troubles for Portugal to meet the demands of Angela "Frau Fritz" Merkel for austerity

Aljazeera English reports on the latest wrinkle in Portugal's austerity troubles, in which a constitutional court decision blocked a key part of their austerity program enacted under the hammer of pressure from German Chancellor Angela "Frau Fritz" Merkel to impoverish the Portuguese for the comfort of the Germans and her organizational hammer, the Troika (EU, ECB, IMF). Portugal PM warns nation's eurozone position could be put in jeopardy 04/07/2013:

The caption to the YouTube video reports:

Portugal's Prime Minister has addressed the nation after a crisis was triggered over his government's proposed austerity cuts.

Pedro Passos Coelho said that he respected but disagreed with a decision by Portugal's highest court to reject its proposed austerity measure.

Passos Coelho said it would have consequences for the entire country and threatened the nation's position in the eurozone.

The constitutional court's decision deprives the government of about $1.7 billion of expected revenue.

An Aljazeera English news article on the subject is here, Austerity ruling puts Portugal in a bind 04/06/2013.

Things have reached the point where democracy in the eurozone, most urgently at the moment in Cyprus, Greece, Ireland, Italy, Portugal and Spain, the existence of meaningful electoral democracy, is in direct contradiction to continued membership in the euro.

The success of the eurozone and the larger EU depended on the German political elites and the sense of responsibility and restraint on the part of German voters would be strong enough to never allow a German government to do with Frau Fritz has been doing since 2009, with the disgraceful support of the German Social Democratic Party and even the Greens - who are in any case seated to the right of the SPD in the Bundestag.

The inspired Greek cartoonist Yannis Ioannou in this 02.04.2013 cartoon depicts Frau Fritz giving some kiddies a tour of an Anthropological Museum that includes what happens to those who tell Frau Fritz "Ja" (yes) and those who tell her "nein" (no). The former gets put in a stockade and kept there till they die, they latter are immediately guillotined. (What the Yeti is doing there, I don't know!)

Not unlike this lady, with Cyprus, Greece, Ireland, Italy, Portugal and Spain all in Alice's position, and who knows who's next?

And how is the democratically elected conservative Prime Minster of Portugal Pedro Passos Coelho defending his country? By more austerity, of course! As Andrei Khalip and Sergio Goncalves report in Portugal to cut spending after court ruling Reuters 04/07/2013:

Passos Coelho said in a televised address Friday's Constitutional Court ruling posed "serious obstacles and risks" this year and next, but reaffirmed his commitment to the fiscal and economic adjustment program under an EU/IMF bailout.

"The government is committed to all the objectives of the program," he said, ruling out further tax hikes but saying it was vital to avoid a second rescue and that he had told ministers to cut spending.

The court on Friday rejected four out of nine contested austerity measures in this year's budget, including cuts to holiday bonuses for pensioners and public servants and reductions in sickness leave and unemployment benefits.

It should come as no surprise from a Prime Minister who in 2011 had this idea for his people without jobs (Mario Queiroz, PORTUGAL: No Jobs? Just Emigrate! Inter Press Service 12/29/2011):

Hounded by the economic crisis that shows no signs of letting up and by political leaders of all stripes, Portugal's conservative Prime Minister Pedro Passos Coelho sent out an unprecedented message to his fellow citizens: emigrate.

A wave of indignation was triggered when Passos Coelho, in the face of the growing unemployment that is hitting young people and educators extremely hard, suggested to teachers on Dec. 18 that as an alternative they could move to Portuguese-speaking countries like Brazil or Angola.

The next day, several ministers applauded the prime minister's remarks, saying his suggestion was a valid solution, especially for teachers.

But the governments of Angola and Brazil quickly responded, saying they had no immediate need for teachers.

Surveys indicate that young people between the ages of 25 and 34 are the most interested in moving abroad.

Democracy or the euro is the choice facing a number of countries now, including Portugal.

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

General strike in Spain and Portugal

Spanish unions staged a general strike on Wednesday to protest the conservative government's crippling austerity policies. Democracy Now! reports, General Strike Sweeps Europe as Millions Reject Austerity as Solution 11/14/2012:

The piece references this piece by María Carrión, Spaniards Take On the Banks The Progressive Nov 2012:

Under Spanish law, banks have the right to claim full payment of debt even after repossessing the property, including the difference in value—which in some cases can be as much as 40 percent due to falling prices.

“The banks go after them like sharks: As soon as people find employment they garnish their wages,” says Vicente Perez, spokesperson for the Platform in Madrid, whose “Stop Evictions” campaign has successfully intervened in more than 100 repossessions in the region. “They seize homes that other family members put up as collateral. The family’s credit is ruined; they cannot get loans, pay anything with credit, or even rent. They live on the margins of the economy.”

As the Rajoy government negotiates conditions with the EU for the 100 billion euro bailout of Spain’s banking system, rotten to the core due to its reckless lending practices during the housing bubble, 15-M and other social movements are asking that banks turn part of the millions of empty properties they amassed through repossessions and debt swaps into affordable rentals. About 5.6 million homes, 20 percent of the total, remain empty in Spain either because they have not been sold or because they were seized by banks.

Carrión in the video talks about the eviction situation.

Here is a shorter video from Euronews on the Spanish strike, Spanish anti-austerity protesters clash with police 11/14/2012:

This is a Spanish-language report from TV Pública Argentina, Huelgas masivas en España y Portugal 11/14/2012:

Público reports that there was an impressive turnout in cities all over Spain: La huelga general culmina en una marcha gigantesca en Madrid bajo el lema: "Nos dejan sin futuro" 14.11.2012. The main slogan for the general strikes was, "Nos dejan sin futuro. Hay culpables. Hay soluciones." (They are leaving us with no future. There are guilty ones. There are solucions.")

Portugal's unions also staged a general strike, and there were work stoppages in Greece and Italy, and notable solidarity demonstrations in Belgium, France and Germany. (See Europa se cubre de manifestaciones contra los ajustes Público 14.11.2012; Trabajadores europeos, a las calles Página 12 14.11.2012. Here are reports on Greece and Italy from Euronews.

Greek workers show solidarity with suffering in Spain, Portugal 11/14/2012:

Italy's anti-austerity protests erupt into violence 11/14/2012:

Tags: austerity economics, eu, euro, european union, portugal, spain, greece, italy

Angie's hammer in Greece, Portugal and Spain

This brief report from Aljazeera English gives a glimpse at the results of German Chancellor Angela Merkel's austerity hammer in three of countries at which it is targeted: Greece, Portugal and Spain (Greek unemployment to top Spain 10/31/2012):

Tags: austerity economics, greece, portugal, spain

Wolfgang Münchau on "the Spanish Bomb" and Schäuble's EU reform proposals

Wolfgang Münchau talks about what he sees - or at least the headline writer did - as the "two ways out of the euro crisis" Zwei Wege aus der Euro-Krise Spiegel Online 17.10.2012. He sees German Finance Minister Wolfgang Schäuble's new proposals for EU reform as a blueprint for "a political coup." Münchau sees his current proposal as a revival of a concept of "core Europe" that he advocated 20 years ago. The idea being that the European Union should have two distinct parts, a core of wealthier countries with a higher degree of political and economic integration and a second group that was part of a looser union with the core group.

One of two options Münchau sees for saving the euro is either splitting it between a euro for the richer northern countries and a separate one for the southern ones. Or, as a variation on this, for Germany to pull out of the eurozone, which is what George Soros has seriously suggested. The second option "wäre eine politische Union, in der Fiskalpolitik und Bankenpolitik im Zentrum angesiedelt sind. Schäubles Vorschlag adressiert nur einen winzigen Teil einer solchen Union." ("would be a political union in which fiscal policy and bank policy are positioned in the center [central government]. Schäuble's proposal addresses only a tiny part of such a union.")

As he notes, Schäuble is focused on overspending as the source of the euro's problem and therefore austerity as a solution. Only in Greece, Münchau reminds us, was excessive public debts stemming from deficits a real problem before the crisis. Spain and Ireland were praised by fiscal conservatives as model examples.

And Münchau reminds us that the current German government of Chancellor Angela Merkel in which Schäuble serves is actually an obstacle to greater union. And the current Merkel/Schäuble course of giving Greece just enough aid to keep paying their current level of debt service will not solve their problem. And, "Ohne eine Akzeptanz von Transfers und Schuldennachlass lässt sich die Peripherie nicht im Euro-Raum halten." ("Without an acceptance of transfers and debt reduction it will not be possible to keep the periphery in the euro area.")

In a previous recent column, "The Spanish Bomb," (Die spanische Bombe Spiegel Online 10.10.2012) Münchau writes about the vulnerability of Spain, which was hit hard by the bursting of the real estate bubble there and the sudden end of the large influxes of capital from wealthier countries, not least from Germany. Not only are they struggling with high public debt ratios now but their private debt levels are at 235% of national income. This leaves them with consumers facing heavy deleveraging that impairs their ability to boost the economy through consumption, undercapitalized banks that have to restrict lending, a pro-cyclical austerity policy that is worsening the shrinking of the economy, a staggering level of unemployment, and, to top it off, a serious and popular secessionist movement in the wealthy province of Catalonia.

Münchau sees only two ways out of that for Spain and also for Portugal. Either Germany and the other wealthy EU countries directly relieve the private sector debt, or they leave the eurozone.

One of those outcomes is clearly more likely than the other.

Tags: angela merkel, austerity economics, eu, euro, european union, portugal, spain

Germany's Merkel and France's Hollande make nice while Angie wrecks the EU

German Chancellor Angela "Frau Fritz" Merkel and French President François Hollande got together on Saturday to celebrate the 50th anniversary of a speech by Charles de Gaulle in 1962 that is considered one of the landmarks on the road to European unity. Platitudes about the importance of the European Union were plentiful. (Diskussion über Europas Zukunft. Pathos reicht nicht Spiegel Online 22.09.2012)

This event took place about the same time as former German Chancellor Helmut Schmidt's warning against German "national egoism" in the euro crisis. (Warnung des Altkanzlers. Helmut Schmidt kritisiert deutschen "National-Egoismus"Spiegel Online 22.09.2012)

News of the failure of Frau Fritz' austerity program keeps coming. Portugal's conservative government agreed in the face of active public protests to ease up at least a bit on their austerity program. Greece's projected budget deficit is looking to be twice as big as previously projected. Cyprus is negotiating terms for a bailout which will bring down Angie's austerity guillotine on them, as well. Italy is raising its debt targets. Spain's conservative government wants to use the crisis and the terms of the new bailout which it hasn't formally requested yet to cut pensions.

Giles Tremlett reports for the Guardian in Spain braced for further austerity as Madrid prepares for bailout 09/23/2012:

Recession-hit Spaniards will this week be told to swallow yet more austerity as the government prepares a fresh round of reforms and another budget filled with spending cuts and tax increases that will allow it to seek a bailout from eurozone partners.

Pension freezes are also expected to form part of a raft measures to prepare the way for the European Central Bank (ECB) to give Spain support to control borrowing costs that will eat up a large chunk of next year's budget.

The budget is to be announced on Thursday, alongside the reform programme. Neither seemed likely to contain measures to immediately ease Spain's chronic 25% unemployment, which some analysts expect will rise to 26.5% next year.

What an awful mess Frau Fritz has created!

In a disappointing moment, Daniel Cohn-Bendit, a major figure in the French Green Party and one of the legendary figures of the May-June uprising in 1968 in France, resigned from the French Green Party because they opposed the adoption of Frau Fritz' fiscal suicide pact, officially called the Intergovernmental Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union. French Greens' Cohn-Bendit quits party in fiscal pact row Reuters 09/23/2012)reports, "The French Greens voted overwhelmingly against the terms of the pact at a grassroots assembly on Saturday, concluding that it would not provide long-term answers to the EU crisis nor help foster environmentally friendly policies."

Cohn-Bendit is co-president of the Green Party caucus in the European Parliament, a position he will presumably have to relinquish now. I think Cohn-Bendit has been a constructive voice in his role in the European Parliament, and I hate to see him leave.

But his party in France took the right position on the treaty. Reuters reports:

The French Greens voted overwhelmingly against the terms of the pact at a grassroots assembly on Saturday, concluding that it would not provide long-term answers to the EU crisis nor help foster environmentally friendly policies.

France is expected to ratify the pact early next month, though a major revolt within the coalition could force the Socialists into an embarrassing reliance on the conservative opposition.

Hollande's Socialists should be embarrassed. The fiscal suicide pact fixes a major feature of Merkel's austerity policies permanent in the approving countries, an arbitrary limit on debt to 60% of GDP. To a significant degree, it would outlaw Keynesian counter-cyclical economic policies in recessions. It's just nuts to write that into constitutional law in any country.

Tags: angela merkel, austerity economics, eu, euro, european union, france, françois hollande, greece, portugal, spain

The Troika: Portugal needs only a teentsie bit less austerity - next target: Spain

The Troika - the EU Commission, the IMF and the European Central Bank (ECB) - or just read: Germany - has been merciful to Portugal. Portugal is struggling with an economy in recession that is projected to shrink further in 2013. So instead of insisting on the previous target of a 5% deficit target this fiscal year, the Troika graciously allowed Portugal to do only 4.5%. (Portugal, en su trampa Página 12 11.09.2012)

This, of course, continues the austerity program that is wrecking Portugal's economy, along with those of Greece, Ireland, Italy and Spain. So the cuts in government employment and the sell-off of public property will continue, as the Troika's neoliberal program demands. So will cutbacks in public assistance for the poor and unemployed.

Spain, meanwhile, is coming closer to asking for direct aid from the Troika, which would mean yet another austerity agreement for Spain, where the previous Socialist government and the present conservative won have been pursuing the austerity agenda with gusto even in the face of the depression. The eurozone finance ministers are meeting on Friday to discuss new Spanish terms for the bailout, which is still officially a hypothetical case, since Spain's Prime Minister Mariano Rajoy hasn't formally requested it yet.

Spain's debt-to-GDP ratio was at 35% before the depression started, now it's edging toward 100% aafter the end of their considerable housing boom and the general economic depression got underway. (Álvaro Romero, El BCE alerta que la deuda pública se irá sobre el 100% del PIB si falla en el ajuste El País 13.09.2012) The ECB is pushing them hard to improve the debt ration by austerity measures to lower the deficit, thus continuing the downward cycle, with workers overwhelmingly paying the heaviest price. This is a continuing nightmare.

More serious in the long term than the economic damage is the damage to democracy this could do. Greece, Ireland, Italy, Portugal and Spain are all in varying degrees operating on economic policies that have been more-or-less forced on them by the EU (read: Germany). Greece and Italy even had to change governments at the EU's direction. And the policies they are following are drastically increasing economic inequality, definitely an unhelpful condition for democracy. And voting in new governments doesn't change the policies in any material way. As Joaquín Estefanía writes, "Si no existe la capacidad de intervención efectiva por parte de una autoridad política electa, no hay democracia." ("If the capacity doesn't exist for an effective intervention on the part of an elected political authority, there is no democracy.") (La democracia aletargada El País 13.09.2012)

Alexis Tsipras, leader of Greece's second-largest party, Syriza, has held to the position that Greece should stay in the eurozone. But apparently he's now appreciating the Argentine approach more and more (Tsipras: 'I wish we had become Argentina' Athens News 09/07/2012):

The leader of Syriza told parliament on Friday that he wished Greece “had become Argentina”.

Alexis Tsipras made the remarks when asking a parliamentary question during the prime minister’s question time about the proposed government sell off of Hellenic Postbank. ...

Addressing the finance minister, Tsipras said: "You say how "we didn’t become Argentina’. I wish that we had: Argentina went through huge difficulties and its citizens were able to stand with dignity.”

Tags: argentina, austerity economics, eu, euro, european union, greece, portugal, spain