The EMU reform ruse – Part 2

This blog continues the discussion from yesterday’s blog – The EMU reform ruse – Part 1 – where I consider the reform proposals put forward by German academic Fritz Sharpf, which have been held out by Europhile Leftists as the progressive way out of the disaster that the Eurozone has become. Yesterday, I considered his first proposal – to continue with the enforced structural convergence to the Northern model – the current orthodoxy in Brussels. Like Sharpf I agree that the agenda outlined in the 2015 The Five President’s Report: Completing Europe’s Economic and Monetary Union would just continue the disaster and would intensify the political and social instability that will eventually force a breakup of the monetary union. Sharpf’s second proposal is that the EMU dichotomise into a Northern hard currency bloc while the Southern states (and others less inclined to follow the German export-led, domestic-demand suppression growth model) reestablish their own currencies and peg them to the euro with ECB support. While it is an interesting proposal and certainly more adventurous than the plethora of proposals that just tinker at the edges (for example, European unemployment insurance schemes, Blue Bond proposals and the like), it remains deeply flawed. While it is assumed that the Northern bloc would comprise core European nations such as Germany and France, it is not clear that either would prosper under the new arrangement. France and Germany were never been able to maintain stable currencies prior to the EMU. Further, the ‘exit’ proposal ties the poorer nations into a vexed fixed exchange rate arrangement, which would always compromise their domestic policy freedom, just as it did under the earlier versions of the Snake or the European Exchange Rate Mechanism (ERM). Far better to just break the whole show up and let the nations go free with floating exchange rates.

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The EMU reform ruse – Part 1

On October 31, 2017, my blog – Europhile Left deluded if it thinks reform process will produce functional outcomes – countered some of the nonsense coming out of Europe (from the so-called progressive side) that the Eurozone hadn’t failed when judged by it bias towards mass unemployment and increasing precariousness of its citizens. I particularly noted the terrible record in terms of youth unemployment and NEETs. Yesterday’s blog – Massive Eurozone infrastructure deficit requires urgent redress – documented how much damage the austerity bias of the Eurozone has caused to essential productive infrastructure – human and physical and the ridiculous underinvestment by governments locked into mindless Stability and Growth Pact (and its recent derivatives) rules. Unphased, the Europhiles keep telling me that reform processes are underway and that we need to be patient. That the glorious vision outlined in the October 1990 European Commission Report – One Market, One Money Report, which, apparently outlined a vision of domestic-demand driven convergence bliss for the Economic and Monetary Union. I analysed that Report in detail in my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – and have to say that anyone who holds it out as a plan for the future must have been reading a different report or affected by heavy drugs. Today, I am considering recent reform proposals put forward by German academic Fritz Sharpf, who considers the neoliberal Eurozone experiment has failed but can be resurrected without abandoning the essential mechanics of the monetary union. Tomorrow, I will start to consider a so-called progressive proposal that breaks the EMU into two tiers – a Northern hard currency zone and a ‘Southern’ zone where nations reintroduce their own currencies, but peg them against the euro with ECB support. It will not surprise regular readers to know that I disagree with Sharpf’s reform agenda.

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Massive Eurozone infrastructure deficit requires urgent redress

The latest – EIB Investment Report 2017/2018 – published last week by the European Investment Bank tells anyone who cares to take those Europhile Rose Coloured Glasses off for just a second how deep the failure of the European policy making structures are and how long the negative impacts of those failures will resonate. This is the true ‘burden for our (their) grand kids’ sort of stuff. In claiming they had to run tight fiscal policy biased towards surpluses to avoid forcing the future generations to carry an unfair burden, these European policy makers and leaders have done exactly the opposite, as predicted – they have created an appalling future for their youth and their children to follow. The whole European monetary experiment is a failure and is beyond reform. It needs to be scrapped, national sovereignty restored and people within their own countries left, through democratic institutions to determine how the public sector operates in their best interests. The Troika technocrats should be led out to pasture. And, to the Europhile Left: take of your rose coloured glasses.

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Europhile Left deluded if it thinks reform process will produce functional outcomes

A recent twitter exchange with some Europhiles who believe that it is better to wait for some, as yet unspecified, incremental reform process for the Eurozone rather than precipitate exit and the restoration of currency sovereignty was summed up for me by one of the tweets from Andrew Watt. In trying to defend the abandonment of sovereignty and make a case for continuing with the so-called reform dialogue, he wrote (October 27, 2017): “Unemployment in “periphery” was v hi before €. Fell rapidly. Then rose sharply, has now fallen somewhat. So picture very mixed.” I found that a deeply offensive claim to make and responded: “It is not a mixed picture at all. Youth unemployment has never been as high. Greek unemployment was never > 12%. Now > 20% indefinitely.” I also attached a graph (see over). I think this little exchange captures the essence of the delusion among many in the Left that we document in our new book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017). The Europhiles maintain a blind faith in what they claim to be a reform process, which when carried through will reduce some of the acknowledged shortcomings (I would say disastrously terminal design flaws). They don’t put any time dimension on this ‘process’ but claim it is an on-going dialogue and we should sit tight and wait for it to deliver. Apparently waiting for ‘pigs to fly’ is a better strategy than dealing with the basic problems that this failed system has created. I think otherwise. The human disaster that the Eurozone has created impacts daily on peoples’ lives. It is entrenching long-term costs where a whole generation of Europeans has been denied the chance to work. That will reverberate for the rest of their lives and create dysfunctional outcomes no matter what ‘reforms’ are introduced. The damage is already done and remedies are desperately needed now. The so-called ‘reforms’ to date have been pathetic (think: banking union) and do not redress the flawed design. And to put a finer point on it: Germany will never allow sufficient changes to be made to render the EMU a functioning and effective federation. The Europhile Left is deluded if it thinks otherwise.

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The sham of ECB independence

One of the major claims the founders of the EMU made was that by creating an independent ECB – by which they meant ‘independent’ of the influence from the Member States or other EU bodies (such as the Eurogroup) – they were laying the foundations of financial stability and disciplining the fiscal policy of the Member States. This so-called independence was embodied in the – Treaty on the Functioning of the European Union – where Article 123 prevents the ECB from giving “overdraft facilities or any other type of credit facility” to the Member State governments (and other EU bodies); Article 124 prohibits any Member State government (and other EU bodies) from having “privileged access” to the financial institutions; and Article 125 prohibits the ECB from assuming any liabilities or “commitments” of the Member State governments (etc) – the famous ‘no bailout’ clause. But a recent report from the Corporate Europe Observatory (CEO) – Open doors for forces of finance – (published October 3, 2017) – suggests that the ECB feigns independence and is in fact captive of the largest profit-seeking financial institutions that sit on its advisory groups. In other words, the ECB has become a vehicle to advance private return and avoid regulative imposts when the TFEU outlines an entirely different role for the bank.

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Three recent interviews – transcripts and video

Today, I have translated two interviews I did while I was in Europe recently. The original interviews were in Spanish. The first interview was with Andrés Villena Oliver for CTXT and was published in the Spanish newspaper Público. It was conducted at Ecooo in Madrid on September 28, 2017. The the second interview was with journalist Marta Luengo Garcés from the progressive newspaper El Salto Diaro. It was conducted at the Principe Pio Hotel in Madrid on September 29, 2017. You can get a feel for the concerns of the progressive journalists in Spain by the type of questions they asked me. I have also included the video of an interview I did yesterday (October 16, 2017) with Steve Grumbine of the Real Progressives. That should keep readers more than busy until tomorrow.

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Wolfgang Schäuble is gone but his disastrous legacy will continue

History is often made by single, very powerful individuals acting on their own mission according to their own calling. Many of these individuals are seemingly immune to the reality around them and try to recreate their own reality – sometimes succeeding to advance the well-being of those around them and beyond, but, usually, they just leave the main stage after creating havoc. I could name names. But only one name is relevant for today’s blog – Wolfgang Schäuble, the former CDU German Minister for Finance. Schäuble resigned that role after the recent German elections and is now being feted by the mainstream press as some sort of visionary who kept the Eurozone together through his disciplined thinking and his resistance to populist ideas that would have broken the discipline imposed on Member States by the European Finance Ministers. History tells us differently. He has overseen a disastrous period in European history where its major step towards political and economic integration in the 1990s has delivered dysfunctional and divergent outcomes for the Member States. Some countries (Greece) has been ruined by the policies he championed while others are in serious trouble. Further, despite him claiming the monetary union has been successful, the fact is that the Eurozone is still together only because the ECB has been effectively violating the no bailout articles of the Treaty of Lisbon via its various quantitative easing programs since May 2010. Should it stayed within the ‘law’ of the union, then several nations would have been forced into insolvency between 2010 and 2012. The problem is that while Schäuble is now gone from the political stage, his disastrous legacy will continue.

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Jean-Claude Juncker in denial and somewhat delusional

Last week (September 13, 2017), the President of the European Commission, Jean-Claude Juncker, presented his State of the Union Address 2017 in Strasbourg before the European Parliament. My only query arising from the speech was which Member State has left, given that the President began his speech by thanking “the 27 leaders of our Member States” (joke). He opened by saying how unity among the Member States had “showed that Europe can deliver for its citizens when and where it matters”. I wonder which Planet he was referring to. I thought Europe was on the Mother Earth and it certainly hasn’t been delivering for its citizens, if the usual measures are considered. Juncker’s speech just continues what I considered to be ‘Groupthink and Denial on a Grand Scale’, which was the subtitle of my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale. It is amazing that the denial continues after 10 years and that guys like Juncker can still command an audience and a salary.

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ECB is running out of debt to buy – more smoke and mirrors needed

There was a Bloomberg report yesterday (September 6, 2017) – Draghi’s Claim of QE Flexibility Is Attracting Doubters – that made me laugh. The sort of laugh that comes when you just realise there is parallel language spoken out there that makes no sense and reinforces stupidity with stupidity. Much like most of mainstream economics commentary. The journalist was trying to argue that times is up for the ECB’s Quantitative Easing strategy because they are running out of debt to buy. Whew! That sounds like a catastrophe. The point is that the elephant in the room is ignored. The ECB is already massively violating the Treaty of Lisbon constraints on funding government deficits. It is time they realised that without that ‘quasi fiscal support’ (given the ECB is effectively the only functioning federal fiscal authority by default in the Eurozone), the system will collapse under the weight of austerity. Leadership demands they take the next step and allow the ECB to openly fund deficits using Overt Monetary Financing (OMF). But the lack of leadership tells us they will not take this obvious step. The grinding nature of Eurozone economic history will continue as a result – and then the next crisis will hit.

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