This is the first part in what might be several blogs. I will see where my curiosity takes me. Today I want to invoke that well-known piece of inductive reasoning the – Duck Test. We all should know how that goes. But consider this reasoning. We have an institution that is 100 per cent government owned. It borrows millions and its liabilities are 100 per cent guaranteed by the federal government. It spends, I mean lends millions each year at very low rates to all manner of firms, organisations and even builds infrastructure. It also takes equity positions (provides capital) to a range of enterprises. It pays no tax having the same status as the central bank. It is not a duck but looks very much like a government fiscal entity. Welcome to the Kreditanstalt für Wiederaufbau (Reconstruction Credit Institute) or as it is now known the – KfW. This bank was created in 1948 as a German vehicle to faciliate the infrastructure rebuilding under the Marshall Plan. It has since grown (and diversified) into one of the largest banks in Germany (taken its main business units into account) and pumps millions of Euros in the domestic economy and the export sector (via IPEX, its 100 per cent owned subsidiary). It is a major reason why the public debt ratio in Germany is 80 per cent rather than close to 100 per cent. It is a major reason why the federal deficit has been reduced without scorching the German economy. It is a story about smoke-and-mirrors accounting, German-style.

The Euro crisis is over! The Euro crisis is over! I suppose if one says it loudly enough and often enough it might drown out what the data tells us. The most recent data – inflation slowing, real GDP growth slowing, no movement on unemployment – tells us that while the politicians have an incentive to talk up the situation and proclaim the crisis is over, the reality is different. The fact that the bureaucrats are now realising that Eurozone budgets in many nations are not going to come close to meeting the harsh (revised) Stability and Growth Pact requirements tells us that the policy structures in place are not delivering on their promise. When a 0.1 per cent growth rate is celebrated you know something is amiss – that is how far standards have dropped in a region that cannot deliver sustained prosperity to its citizens as long as it ties a massive anchor round its feet! The industrialists and elites talk continually of structural reform – which is code for cutting workers pay and rights and retrenching welfare systems for the disadvantaged, the major structural weakness stares them in the face – unnoticed. That structural weakness is the flawed design of the monetary union. Until that is addressed the situation will limp along, perhaps get a surge of growth here and there, until the next major negative demand shock hits from somewhere (like the US, or China) and then the whole drama begins again.

During the late 1980s and into the 90s when the Monetarists (mostly holed up in Britain) were boasting that the widespread privatisation and labour market deregulation strategies they had instigated were containing inflation and setting up their economies for sustained growth with reductions in unemployment my response was “what do they do they do for an encore”. It was obvious that if you scorched domestic demand and pushed up unemployment that the inflation rate would drop and the reduced imports would flatter the external balance. The question then was – what do you do next? Once growth returns in domestic demand rises on the back of increased income growth, imports start catching up and workers start demanding wage rises to make up for lost real income during the deflation and you end up with nothing much being achieved except for a extended period of lost real income, and rising inequality given the lower income groups carry the burden of the recession. The conservatives became slightly more astute in more recent years arguing that the recession provided the opportunity for nations to undergo radical restructuring so that growth could be driven by exports as a result of increased competitiveness. That’s the European model at the moment. Is it working? The IMF doesn’t think so.

In light of the – An Open Letter from Howard Schultz, ceo of Starbucks Coffee Company – which contains “a respectful request that customers no longer bring firearms into our stores or outdoor seating areas”, I felt it necessary to request that all readers of my blog leave all weapons (guns, rocket launchers and any other armaments that you carry on a regular basis) away from their side when they read my blog. Otherwise, violence might erupt as the arrogance of the neo-liberals scales new heights – five years into the crisis. To get your ire up several notches, you might read the latest article (September 16, 2013) by Greg Palast – Larry Summers: Goldman Sacked (thanks Gustavo). Remember keep your weapons out of reach! Then you might reflect (keeping as calm as you can) on the latest offering from the German Finance Minister, Wolfgang Schäuble in the Financial Times (September 16, 2013) – Ignore the doomsayers: Europe is being fixed. The triumphalism throughout the article demonstrates to me that Mr Schäuble has standards of excellence that lie well below what is conventionally considered to be (barely) reasonable. What he uses as the benchmark for defining mediocrity is beyond imagination. These are crazy times – when these economic criminals walk the streets at large, puffed up by their own arrogance and delusion, slapping themselves and their mates on the back, demanding credit for the human wreckage that their actions created, made worse and ensured will span generations. While we see youth unemployment rates of 62.5 per cent and rising suicide rates, these characters see glory and fulfillment. A most strange period of history and future generations will reflect on these apes poorly.

I have been trawling through the AMECO database for part of today as a means to learn more about what is happening in Europe as austerity continues into its fourth year for most nations. One of the neo-liberal mantras has been that the enduring crisis has been the result of major imbalances in current accounts (trade in goods and services and associated income flows) between the European nations. This reasoning implicates excessive wages growth in highly regulated labour markets, which also undermines the incentives for productivity growth (hence competitiveness declines and export markets shrink and imports become attractive). Alleged fiscal laxity is also implicated – excessive public employment growth, which apparently is less productive and encourages excess wages growth (stronger trade unions, better job protection). Taken together these claims are made about the peripheral Euro nations, which are in such trouble at present. This discussion has underpinned the policy push for austerity and largely denies the alternative view (which I largely adhere to) that the monetary union was ill conceived from day one and its design was incapable of resisting the major negative aggregate demand shock that arose in 2008. There was no federal fiscal capacity and no uniform banking rules. Any way, I am looking into some of the components of the first story – and examining what has been happening to unit labour costs. This blog reports the early stages of that work.

There are many pro-austerity commentators who have been pronouncing that the worst of the Eurozone crisis is over. Of-course, they follow these pronouncements with claims that improvement was all down to the austerity. I must live in another universe because my reading of the data tells me that austerity continues to weigh down growth and prosperity in the Eurozone as industrial production and employment fall. I have been updating my Eurozone databases today to reflect recent Eurostat data releases and this blog provides some insights into what the data is currently telling us. The message is consistent with my interpretation that recovery is still not occurring and a major policy reversal in favour of stimulus is desperately warranted. The data tells us that Eurozone production and employment still going backwards = 5 years after the crisis began.