Spain in limbo but has not rejected austerity

On the Sunday before last (December 20, 2015), Spain conducted a general election, which has left the nation in limbo. Alex Tsipris, the Greek Prime Minister, still trying to hang on to the image that he is a progressive leader in some way, tweeted once the results were known that “Austerity has now been politically defeated in #Spain, as well. Parties seeking to serve society made a strong showing #20D”. I wonder who he is trying to kid … “as well” – as well as where? Certainly not in Greece, which was the implication of his tweet. And, to be clear, certainly not in Spain. While the conservative Popular Party (PP), which has overseen the most recent imposition of austerity and is firmly pro-EU and pro-euro, did not gain an absolute majority, they did win the most seats (123 in the Spanish parliament) and were well ahead of the other major austerity party, yes, the Spanish Socialist Party (PSOE), which won 90 seats). Even the left-wing We Can party (Podemos), who won 69 seats is not planning to exit the common currency. There is no hope of an anti-austerity coalition forming.

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German Ministry of Finance’s anti-Europe proposal

Recently, I wrote a blog – Who is responsible for the Eurozone crisis? The simple answer: It is not Germany! – where I contended that Germany was not to blame for the Eurozone crisis. I also wrote that while Germany was not responsible, single-handedly, for the creation of the dysfunctional monetary union, its politicians were surely complicit in making the crisis deeper and longer than it otherwise could have been given the circumstances. A few weeks ago, I read an article in the Italian news (December 15, 2015) – Il piano tedesco su debito e aiuti Ue (The German plan for debt and EU aid) – which I intended to comment on when time permitted. I note that the author, one Carlo Bastasin, is also associated with the American Brookings institution, and that organisation published in English-language version of the article – Mr. Schäuble’s ultimate weapon: The restructuring of European public debts – on the same day, which makes it easier for more people to read. With Germany now the dominant economic and political force in Europe, bullying other nations to support pernicious policies in southern Europe, their latest plan demonstrates clearly that their conception of European integration bears no resemblance to a structure that might allow the common currency to function effectively in the interests of European citizens.

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Ireland demonstrates that fiscal deficits promote growth

On December 10, 2015, the Irish Central Statistics Office (CSO) released the – National Accounts, Quarter 3, 2015 – data, which showed that real GDP had increased by 1.4 per cent over the last quarter while real GNP had declined by 0.8 per cent. On an annual basis, real GDP increased by 6.8 per cent in the September-quarter 2015 and real GN increased by 3.2 per cent over the same period. I’ll discuss the difference between GDP in GNP later but is clear that Ireland is in terms of real economic growth leading the Eurozone at present. In narrow terms, it is also clear that over the last two years the nation has recorded consistent growth. A question that is often asked is whether Ireland defies those who claim that austerity is flawed strategy. I get various E-mails along those lines, some polite, some rude. My answer to the polite ones is that it is difficult to hold out Ireland as an example of austerity-led growth. Ireland is, in fact, a rather strange Eurozone Member State, and is more firmly plugged in to the Anglo world than other Eurozone nations. It just happens, that while the Irish government was suppressing domestic demand through austerity from as early as 2009, significant trading partners (such as, Britain, the US and China) were maintaining expansionary fiscal positions, which allowed Ireland to resume growth. Further, a narrow focus on the growth cycle misses significant aspects of national prosperity. Even with two years of economic growth, real earnings growth is flat to negative, the rate of enforced deprivation remains around 30 per cent, and there is a rising proportion of people at risk of poverty. On top of that, net emigration of skilled workers continues, which means that the official unemployment rate is much lower than it would have been if these workers had not left the country.

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Finland should exit the euro

I think the progressive side of politics has a real problem when it is increasingly gazumped in policy insights by politicians and/or commentators from the populist, xenophobic, racist, homophobic, far right-wing. Whether Finland’s Foreign Minister Timo Soini is all of those things or just nationalistic and far right (one of the members of his Finns party wants homosexuals and some foreigners rounded up and sent to some remote Baltic Sea island), he is certainly correct when he told the press yesterday that “Finland should never have signed up to the single currency union” and “could have resorted to devaluations had it not been for its Euro membership” (Source). Earlier this month (December 4, 2015), Statistics Finland published the latest National Accounts data for the third-quarter 2015, which showed that real GDP declined by 0.5 per cent in that quarter and by 0.2 per cent over the previous 12 months. In the past 12 months, both exports and imports declined by 3.4 per cent, the former signalling declining markets and the latter declining domestic income – both bad. Investment spending fell by 3.9 per cent in the year to September, which will further undermine the nation’s potential growth. It is now becoming the basket case of advanced Europe.

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Benefit tourism – another neo-liberal fallacy

One of the tools that right-wing elements use to control the public debate about government spending and to justify their attack on public deficits is migration. There are many aspects to this public manipulation that invokes raw fear, ignorance and prejudice among the population. One of the elements, which plays on job insecurity and the range of fiscal myths that characterise the neoliberal era, is the claim that so-called ‘benefit tourism’ is rife and if left unchecked will bankrupt national governments and lead to higher burdens on ‘taxpayers’. So we are often told that migrants from poorer nations move to access welfare benefits that are superior to those offered by their own nations and that these movements are parasitic in nature and do not advance the interests of the host country citizens. Last week (December 10, 2015), the Irish-based EU organisation, the European Foundation for the Improvement of Living and Working Conditions (Eurofound) released a report – Social dimension of intra-EU mobility: Impact on public services – which examines “the extent to which mobile citizens from central and eastern European Member States … take up benefits and services in nine host countries” by “mobile citizens from 10 central and eastern European Member States” (the so-called EU10 mobile citizens). The Report should be read by all those who wish to contribute to this debate or understand what the facts are. Essentially, the Report finds that mobile citizens from poorer nations have lower take-up rates of welfare support in host countries than natives. That really should be the end of the ‘benefit tourist’ assertions. But then most of these public debates are not based on evidence or logic.

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Who is responsible for the Eurozone crisis? The simple answer: It is not Germany!

Today, the Australian Treasurer will release the so-called Mid-year Economic and Fiscal Outlook (MYEFO), which will reveal that the fiscal deficit has risen on the back of slower economic growth. I will comment about that and the reactions tomorrow, probably. Today’s blog is about the Eurozone, obviously one of my favourite research topics. There was an article in the UK Independent (December 14, 2015) by British economist Simon Wren-Lewis – Who is responsible for the eurozone crisis? The simple answer: Germany. The article largely avoids the question and chooses, instead, to focus on more contemporary influences which have magnified rather than caused the crisis. The article clearly blames Germany for the crisis and exonerates Greece, Ireland and Spain. However, I have argued in the past that France is largely responsible for the mess that Europe is in economically at present and it’s responsibility goes back decades before the Eurozone was even constructed. The causa causans of the Eurozone crisis is the essential design and construction of the Economic and Monetary Union (EMU), which was never going to be capable of operating in an effective manner. Germany set in train policies that would ensure they were insulated from the wreckage that the dysfunctional system would engender. Germany ‘gamed’ a dysfunctional system for its own advantage but they didn’t create that system and in that sense they are only a causa sine qua non, rather than the essential cause.

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The Job Guarantee and contributory unemployment benefits systems

The unemployment rate in Finland is climbing steadily and in October 2015 was 9.6 per cent (seasonally adjusted) and the employment to population ratio stood at 60.1 per cent and was trending down. Finland is fast becoming the next basket case of the Eurozone. What was once a highly supportive society is steadily being turned into a austerity-ridden backwater. The latest news, however, that the Finnish government is due to debate a proposal to provide every citizen with a basic income of €800 a month has excited the progressives – unfortunately. The proposal currently being prepared by the national agency that administers the Finnish welfare system (KELA) would offer this basic allowance in lieu of all other existing benefit payments. It would be paid regardless of whether the person received income from any other source. I have been considering the Finnish welfare system over the last month or so since my visit there in October. This is in relation to a series of queries I had from activists there who were keen on the Modern Monetary Theory (MMT) Job Guarantee proposal but were wondering how it would situate itself within the existing system of unemployment benefits in Finland. This blog captures my thoughts on both of those topics.

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Friday lay day – Eurozone, lessons have not been learned

It’s my Friday Lay Day blog and my head is firmly in the 1960s and being helped along by music from the early 1970s. I’m currently trying to trace the evolution of intellectual ideas in the French Ministry of Finance as it gained ascendancy in the late 1960s over the Planning Ministry, which was Keynesian in outlook. It is no easy task. The current situation in Europe is approaching laughable in a sort of tragic sense, given the millions of people who are unnecessarily unemployed as a consequence of the incompetence and folly of the political class. The latest manifestation of this folly was the Monetary Policy decision released by the European Central Bank yesterday (December 3, 2015) which was met with derision from commentators and the financial markets responded by pushing the value of the euro up, which will further exacerbate the ECB’s claim that it wants to increase the inflation rate.

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IMF continues with its wage-cutting line

In November 2015, the IMF released an IMF Staff Discussion Note (SDN/15/22) – Wage Moderation in Crises: Policy Considerations and Applications to the Euro Area – which purports to measure “the short-run economic impact of wage moderation and the implications for policy in the context of the euro area crisis”. It juxtaposes the impacts of the so-called internal devaluation approach with the impacts of Eurozone monetary policy. It recognises that the euro zone countries cannot use exchange rate depreciation to boost domestic demand but argues that instead, “lower nominal wage growth … and lower inflation or higher productivity growth relative to trading partners is needed”. The paper presents the standard mainstream arguments that: 1) wage cuts improve employment through increased competitiveness; 2) interest rate cuts stimulate overall spending; 3) quantitative easing stimulates overall spending. There is very little empirical evidence to support any of these statements, especially when fiscal austerity is accompanying these policy measures. The discussion does acknowledge wage cuts may be deflationary and “work in the opposite direction of the competitiveness affect”, in other words, domestic demand and overall growth declines. The unstated message is that internal devaluation doesn’t really improve competitiveness when it is imposed across the currency bloc and undermines domestic spending, which further impedes any export growth (because domestic income drives import demand).

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The demise of French greatness and the European Left

The GFC clearly, in my view, demonstrated that the political positions held by both the left- and right-wing governments in the West with respect to economic policy were untenable. Both sides of politics in each major and country adopted versions of market liberalism where the overlap was more dominant than the differences. While the left maintained some emphasis on social policy and the right maintained an emphasis on individual freedom (which was more about corporate freedom than anything), the fact remains that these differences were blurred by the dominance of the free market approach in each of their platforms. It is ironic, that as a consequence of the GFC, the bureaucratic state is more dominant now than it was, especially in the European Union where the political and technical elite interacts with the so-called market to create what has been called the democratic deficit. We now have technocrats in the European bureaucracy, in the IMF, in the World Bank and other multilateral organisations who contrive to implement policies which have allowed the benefits of economic activity to be increasingly diverted to beneficiaries who are at the top end of the income and wealth distribution. Today’s blog continues reporting some of the research I’ve been doing for my next book on the demise of the Left and the subjugation of public purpose in the name of austerity. It seems that we have concentrated on fiscal austerity but the general notion of austerity, which is now the centrepiece of political positions in most advanced countries, goes well beyond just fiscal policy. The response to the recent events in Paris demonstrate how far the state is willing to centralise authoritative controls on the rights of their citizens.

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