Forget European reform – the Germans have anyway

For readers who follow my Twitter account, you will be aware that occasionally I have have brief interchanges with various Europhiles who have an abiding faith in the capacity of the Eurozone to reform itself along progressive lines to make it resilient against economic cycles and capable of advancing the prosperity of all the citizens who share the currency. They were particularly incensed when my latest book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World with Thomas Fazi was published in September last year. Our argument has always been that Germany is Germany and as such there is little hope that the basic flaws in the EMU will be resolved any time soon. Well in the last week, the Europhile bubble has been well and truly pricked by the decision of new German finance minister Scholz to retain the hard-line order-liberal Ludget Schuknecht as the chief economist in the Finance Ministry. Signal: nothing is going to change in the EMU that matters.

The Left Europhiles were salivating when Olaf Sholz came out of the SPD negotiations with Merkel’s CDU as Finance Minster, a move they claimed would more closely align German foreign policy (and Eurozone policy) with that of French President Emmanuel Macron who had been pushing a sort of limited reform agenda in the Eurozone.

At that stage, I doubted that any meaningful reform would occur, given that Scholz sits on the very conservative end of the SPD continuum.

I expressed that view in this blog post – Europhile reform dreamers wake up – there will be no ‘far-reaching’ reforms (March 12, 2018) – just after the so-called GroKo was finalised in Germany.

I noted that all this enthusiasm about the Social Democratic Party (SPD) entering a new coalition with Merkel’s Christian Democratic Union (CDU) conservatives, overlooked the obvious fact that the SPD had been in coalition with the CDU between 2005 and 2009 and again since 2013.

In other words, the GroKo (as it is being called – Große Koalition) has been in government for some years while Germany has gone off the rails with huge external surpluses, persistent fiscal surpluses, its labour market offering worsening conditions to workers, and its public infrastructure degrading so much that trucks can no longer cross key bridges.

And remember the SPD is not exactly a progressive force having introduced the first big neoliberal push under its Agenda 2010 strategy.

On March 14, 2003, the German Chancellor Gerhard Schröder introduced the famous – Agenda 2010 – to the Bundestag, which set out the massive welfare cuts and labour market changes that his government would implement.

The term Agenda 2010 reflected its compliance with the – Lisbon Strategy – which was introduced in 2000 and set out a decade of neoliberal policy implementation in the EU.

As an aside, on June 2009, the Swedish prime minister Fredrik Reinfeldt wrote that (Source):

Even if progress has been made it must be said that the Lisbon Agenda, with only a year remaining before it is to be evaluated, has been a failure.

Not to be daunted, the European Commission, following typical form, simply swapped 2020 for 2010 and another decade of doing nothing much other than protect the corporate sector, was ahead.

Schröder’s embrace of neoliberalism manifested in the highly destructive Hartz Reforms, which I wrote about in this blog post (among others) – 72% youth unemployment – the crowning glory of the neo-liberal infestation (June 4, 2013).

The dramatic cuts to income support for the long-term unemployed and the creation of minijobs were a major part of why the SPD has been in political decline since the Gerhard Schröder lost office in 2005.

The lack of popularity for these harsh reforms help explain why the SPD recorded its lowest Post-World War 2 result in the 2009 federal election.

One would think that Mr Scholz would be seeking to distance himself from that legacy even though as the secretary-general of the SPD (2002-2004) and later as the boss of the Ministry of Labour and Social Affairs (2008-09) he was a strong supporter of the Hartz process.

In fact when we was in charge of the Ministry of Labour and Social Affairs he refused to moderate the harsh welfare regime. His focus was on forcing older workers to stay within the workforce by denying them access to welfare benefits.

In 2013, he gave an interview with the centre-right daily newspaper, the Frankfurter Allgemeine – Für Deutschland war unsere Agenda 2010 erfolgreich (March 14, 2013) – which translates to “Our Agenda 2010 was successful for Germany”.

He said that the proposition that “Agenda 2010 had saved the social market economy of Germany” as being “Plausible”.

When asked to explain he said (translating from the original German):

Because Agenda 2010 has helped to ensure Germany’s social security system is once again sustainable, that it is paying for itself again … Now we have surpluses in the social systems again. And without the reforms at that time, our labor market would not have come so well through the 2008/2009 crisis.

Very neoliberal of him.

He claimed the Hartz reforms did not create a “low-wage sector in Germany” and that the “low-wage sector is the result of globalisation and the changing international division of labour.”

Again, the usual neoliberal cop out for the role a captive state has played through its capacity to change legislation and regulations to support capital at the expense of labour.

So why would all these so-called progressive Europhile Leftists be enamoured at the prospect of a guy like becoming Finance Minister.

The Financial Times article (February 9, 2018) – Olaf Scholz, a sound guardian for Germany’s finances – described Sholz as:

… half-man, half-robot, a technocrat with a deadpan delivery and all-too lawyerly turn of phrase.

In early 2000s, the German newspaper Die Zeit once mocked Scholz (“einmal verspottet”) as “Scholzomat” in reference to his early days in the Bundestag as the represenative for Hamburg when he fiercely defended “the government’s controversial reforms of Germany’s welfare state and labour market”.

He played the tough guy, ‘law and order’ card to gain popularity for the SPD – hiring more police, increasing penalties for young offenders, and urged scrutiny of Islamists.

In 2004, he was accused of being overly ambitious and guilty of “Napoleonic posturing” (“napoleonisches Gehabe”) (Source)

The Financial Times article quotes Scholz as saying “I can only distribute what I have earned”, in response to those who think he will depart from the current austerity bias.

One commentator reflected that Scholz was “like a Hanseatic merchant, reliable, solid … He’s very German: he won’t do anything crazy”.

While some in the SPD think they are now better placed within the Coalition to push for things like increased welfare payments and government-created community work, Scholz will see none of it.

On March 18, 2018, Die Ziet article – Scholz hält an Hartz IV fest (Scholz sticks to Hartz IV”) – makes it clear that the new German Finance minister is not about to abandon the harsh neoliberal welfare and labour reforms that the SPD Schröder government (of which he was a part) introduced.

Rather than increase the unemployment benefit to improve the material standards of living of the long-term unemployed (which some in his own SPD want to introduce), Scholz told the press that “the number of citizens who are long-term unemployed has to drop significantly”.

How? By kicking them off welfare rather than generating more inclusive jobs.

The Irish Times article (March , 2018) – Centre-left SPD floats welfare reform in Germany – concluded tha there were “two obstacles” to any meaningful reform within Germany:

First, Merkel’s centre-right Christian Democratic Union (CDU) is up in arms, warning of a state-subsidised army of workers who will undermine small businesses.

The second obstacle to reform is the SPD federal finance minister, Olaf Scholz. Just weeks in office, he has vowed to continue the balanced budget policies of his CDU predecessor, Wolfgang Schäuble.

So despite all the euphoria that Germany was about to partner up with Emmanuel Macron and agree to sweeping changes to the structure of the Eurozone, the distance between Scholz and Wolfgang Schäuble is not that great after all.

And any imperceptible difference will even smaller given that Scholz has retained the ordoliberal hardliner Ludger Schuknecht as the Chief Economist in the Ministry of Finance.

Schuknecht was clearly the principle author of the infamous ‘non-paper’, which Wolfgang Schäuble left as his legacy.

I considered that intervention in this blog post – Wolfgang Schäuble is gone but his disastrous legacy will continue (October 16, 2017).

The Banker magazine published Op Ed by Schuknecht (January 3, 2017) – Fiscal normality must be the focus – where he outlined his views on fiscal policy.

He bemoaned the “ultra-loose monetary policies in advanced economies” and the fact that even the IMF was recommending “a new dose of fiscal stimulus” – which he considered was:

… based on the old idea of macroeconomic fine-tuning and debt-driven growth.

He then said, in relation to that “old idea” that:

Its relevance today is questionable; it would perpetuate financial imbalances, high debt and risks of crisis. Hence, we need to rethink the role of fiscal policy.

He thought that:

1. Fiscal deficits were still too high and solvency was only being maintained by the “Ultra-low interest rates” which are forestalling the inevitable debt meltdown when interest rates rise.

2. Because banks are now holding significant quantities of government debt “distress can spread from the public to the private sector and vice versa”.

3. “there are also risks from sovereign debt on central banks’ balance sheets … Central banks may be prevented from normalising monetary conditions if they fear that, by doing so, they will suffer losses”.

4. “rising political risks, together with increasing support for political forces that are less reform-orientated, could translate into higher risk premia and lead to debt sustainability concerns for sovereigns. Add to this the fiscal challenges from ageing populations and the need for more expenditure on security and development.”

5. “this additional expenditure would be on top of already-high public expenditure ratios in advanced economies”.

6. “with the current ultra-loose monetary policies, central bankers have created windfall profits for national budgets and the false impression of ‘fiscal space’. Even dubious debt levels and dynamics look financeable at zero rates. Worse, these fiscal illusions tempt further calls for deficit spending, as we can hardly recall the time of significantly positive nominal and real rates.”

7. “the mountains of debt we see today leave public finances vulnerable to interest rate hikes and weaken their resilience to foreseeable and unforeseen events”.

8. “it is not credible to call for an additional coordinated spending boost by countries that appear to have ‘fiscal space’.

All the usual myths succinctly expressed by Schuknecht.

Instead, he wants to ensure a “balanced budget” with less public servants (reduced bureaucracy) and increased enforcement wihtin the European Union to ensure “sound public finances”.

Within the European context, he wants the Stability and Growth Pact strengthened and flexibility for national governments reduced.

He wants more deregulation (“need for a favourable business environment”).

Not much scope left, after all that, for any progressive reforms one would think.

Clarification

Last week, I posted a snippet in this blog post – On the path to MMT becoming mainstream (April 17, 2018) – where I suggested that the German Makroskop team, who I have been having a healthy interchange with, had started making rather odd associations that they seemingly intended to use to discredit the ideas of MMT proponents such as myself.

This followed the receipt of a Tweet, sent from the account of Heiner Flassbeck, the Director of Makroskop.

The Tweet on April 12, 2018 was:

The UK Guardian article (April 12, 2018) referred to – Wealth inequality is soaring – here are the 10 reasons why it’s happening – had nothing at all to do with MMT.

In fact, the arguments presented in that article are anathema to MMT.

In that context, I was very surprised because in my own conversations with Heiner and his writing he has never expressed hostility towards Modern Monetary Theory (MMT) and is clearly not so dumb as to make the inferences that were in the Tweet.

After some investigation, I communicated with the Makroskop team and suggested that the Tweet was probably sent by one Will Denayer, who was listed on the Twitter account (along with Heiner Flassbeck) and was a member of the Flassbeck-Economics team, which is closely related to the Makroskop publication.

I recommended they sever all relations with this guy as he was clearly giving the impression that the Tweets were coming from Heiner Flassbeck, and they were so generally lame that it undermined the latter’s reputation.

It turns out that Heiner Flassbeck had no idea that Denayer had created this account using Flassbeck’s photo and bio or that Denayer had been pumping out questionable Tweets in his name for some years.

Which confirmed my surprise in the first place.

Heiner has now had the account closed and issued a statement:

In the past there have been tweets using my name on different subjects. This is to clarify that these tweets were never authorized by me and I did not know about it. I have never been on Twitter and I do not intend to be in the future. I can only regret that these tweets were sent from the account of flassbeck-economics but this account will be closed immediately.

I have also deleted the snippet from the original blog post because I do not wish to perpetuate this identity fraud.

Interestingly, the Tweet was sent by the same person that I discussed in this blog post, the day before I saw the ‘Tweet’ – The facts suggest Britain is not as reliant on EU as the Remain camp claim (April 16, 2018).

Denayer had written a Makroskop article opposing Brexit and pulled out almost every Brexit-related myth in the Project Fear book: withdrawing from the European Union (EU) will be an economic disaster for the UK; ‘tens of thousands’ of jobs will be lost; human rights will be ‘substantially’ reduced; ‘principles of fair trials, free speech and decent labour standards will all be compromised’.

So it is no wonder he put out that stupid Tweet about the Guardian article.

That is enough for today!

(c) Copyright 2018 William Mitchell. All Rights Reserved.