The Eurozone is both a spectacular failure and a spectacular success

One of the ways I judge whether an economy is working is whether it is able to provide enough work for those who desire it (both in number of jobs and hours of work). That is, an economy that generates purely frictional unemployment with underemployment eliminated. I know that there are many that think that emphasis is old-fashioned but those opinions are mostly provided by those that have secure, well-paid jobs. The latest Eurostat European Labour Force data, May 2012 shows that the policy framework in Europe is failing dramatically against my benchmark with the unemployment rate is now at its highest level in the Eurozone since the currency union began. I judge the Eurozone to be a failed “state”, in need of a dramatic change in policy approach. At the same time I consider it to be spectacularly successful. Time to explain …

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Euro leaders need to eat humble pie at this summit – but they won’t!

The European leaders are preparing for yet another summit, where the good food will be served and the fine wine will be flowing. One loses count of how many summits there have been since the crisis began. They all promise to deliver the solution but usually end up with some weak worded document about fiscal integration and growth, which quickly descends into increasingly zealous statements about obedience to fiscal rules and monitoring and punishment frameworks and, if you will excuse me, the whole Spanish Inquisition thing! I don’t mean to malign the Spanish here. Rather just calling up historical patterns of behaviour that always end in pain and suffering. The latest signs are that the ECB is continuing to keep the whole boat from sinking while the Germans continue to claim they are the victims. The Euro leadership continues to be obsessed with rules. The financial markets continue to punish the whole setup. Another day in the European crisis. There is a collective denial operating at present and until facts are faced up to (which might require some humble (vegetarian) pie being eaten rather than what is probably on offer in Rome during the current summit) – nothing much is going to be achieved other than rising unemployment and social dislocation. This is truly a mad situation.

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The Euro crisis is all their own doing

I gave an interview today for SBS (Special Broadcasting Service), which is a national multicultural radio/television network in Australia. They wanted to know whether I thought the crisis in Europe had now stabilised given the Greeks avoided “chaos” by voting for New Democracy and more austerity. They also noted that the financial markets were turning on Spain and Italy. I responded by suggesting their question answered itself and that it would be better not to be seduced by the Euro elite spin that Greece is now firmly in the Eurozone and markets will stabilise with austerity. The reality is that the election outcome in Greece just ensures the Greek people will have to endure more debilitating austerity and their growth prospects are virtually zero. In that sense, they were let down by Syriza who promised the impossible – no austerity but retention of the Euro. Given the design of the EMU and the conduct of the ECB, as the currency-issuer, within that monetary union, austerity will be anti-growth and the problem will spread. But then the EC President Barroso is sick of outsiders lecturing the Europeans on how to run their economies. He said today – “this crisis was not originated in Europe”. It all depends on which crisis one is referring to. The Europeans have concocted their own crisis which made the initial “flu” originating in the US turn into something much more deadly. They are totally culpable in this and appear to require external education given the ham-fisted attempts they have made to solve the issue. I told SBS that the solutions proposed and implemented by the Euro elites to the non-problem merely exacerbate the actual problem which is the Euro itself.

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Why the Eurozone is destined to fail

Last night I gave a keynote presentation in Melbourne at the – Can the Eurozone survive its Crisis? – which is hosted by the Monash University European Union Centre. The event was well attended and the chaired by the Ambassador and Head of Delegation of the European Union to Australia and New Zealand David Daly. He closed the night by saying that we shouldn’t judge the Eurozone because it is a “work in progress” and the elites are on the case. The question of-course, is – how long must the millions of unemployed and disadvantaged wait? How many more well-catered for Summits in Brussels must the citizens tolerate? The discussant for my paper was a free market self-confessed right-winger who ended up agreeing that the Eurozone is doomed. Along the way he demonstrated a lack of understanding of basic economics and eventually had to raise Weimar as his major attack on government spending. Apparently, he also thought full employment was undesirable. A picture of Von Hayek appeared at one point. The other panel member was Dr Natalie Doyle who is currently acting as the Head of the Centre and an authority on European culture and politics. I have been travelling today and so have had little time to write. But I thought I would just share a few things with you that arose from last night’s seminar.

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Are the Euro bosses going all growth on us?

I am still in Darwin today and have limited time to write. It seems, however, that the Euro bosses have gone all growth on us. For non-English speakers – going all growth on us – is terrible slang meaning are they becoming enamoured with the idea that growth is important. Apparently, austerity is “so yesterday”, if not “last week” and the mantra is now about “growth compacts”. Forget the fiscal compact which most of the EU states have signed up for which if realised will drive their economies into the ground so harsh are the proposed rules on budgets and public debt. Now there is a growth compact proposal – which Mario has suggested Europe follows. Angie is right in behind him – has Madame Austerity – has gone all growth on us too?. It has been a bad week for the Troika (IMF, ECB, EU) – what with the UK now officially in a double-dip due to the deliberate strategy of its government (emulating the EMU) and across the Channel, the impending success of François Hollande is now becoming obvious. Merkoz will now have to morph into Mollande. And while on “olland”, the Dutch government also collapsed as a direct result of the backlash over the fiscal austerity. Apparently, the likely new French president is not particularly keen to join the fiscal austerity conga line although all his public statements to date would suggest he is committed to the SGP principles. So what is this all about? Are the Euro bosses going “all growth on us”? Answer: there will be no “growth compact” other than in the title of some EU Summit paper. The growth spin is mounting but the EU elites remain firmly wedded to doing everything they can to undermine growth.

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The UK government in a race with the Eurozone to ruin their economies

I am in Darwin today – right in the North of Australia. This is the frontier of Australia and merges our nation with Asia to the north. The dry season has just started and so the tropical weather today is glorious – warm and sunny and dry! It is a 6 hour flight from Newcastle and a remote part of our nation despite Darwin being one of our capital cities. But the world is not very far away from anywhere these days in terms of information access and so it is hard to avoid reading the latest data from around the world and analysing it. The news from Europe over the last 24 hours is shocking and the responses by leading politicians is worse. Just as the British Office of National Statistics was announcing that the UK has achieved a double-dip recession for the first time since the 1970s – an achievement that the Government will no doubt erroneously claim is the work of others – Bloomberg published a story (April 25, 2012) – Merkel Pushes Back Against Hollande Call to End Austerity Drive which tells you how far out of touch with reality the Euro leadership is. The UK government is working as hard as it can to undermine its own economy so it can catch up with the Eurozone economies in the race to the bottom of the slime. It beggars belief really. When will the citizens revolt?

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Policy failure in Europe scales new heights

I had the occasion to re-read an article published by The American Prospect Magazine (March/April edition 1996, pages 54-59) and written by American institutional economist Lester Thurow – The Crusade That’s Killing Prosperity (reprinted December 19, 2001). It is a fine article about the way inflation-first monetary policy, which was one of the defining macroeconomic characteristics of the neo-liberal era (under the aegis of the NAIRU), deliberately drove unemployment and broader measures of labour wastage much higher than necessary and suppressed the capacity of those remaining in employment to enjoy wages growth in proportion to productivity growth. The article is prescient because it provides some good insights into what happens when policy makers deliberately create unemployment (via monetary and fiscal austerity). It allows one to see that the costs extend well beyond the unemployment that emerges fairly quickly. It also allows one to appreciate how austerity impacts across time and damages the prospects for generations. Each week new data comes out which confirms the view that fiscal austerity has failed. Yesterday, the data suggests that the policy failure in Europe has scaled new heights.

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The Eurozone has failed – time for an orderly retreat

The voice from the parallel universe announced that “The euro as a currency is a great success indeed … it is backed by remarkable fundamentals” and harsh fiscal austerity is “the best way to get sustainable growth and job creation”. The only problem is that the voice was none other than the retiring ECB boss Jean-Claude Trichet as he prepared to retire from his post in October 2011. During his term, Trichet was constantly preaching how the introduction of the Euro was a “success”. The only problem is that it is hard to reconcile that conclusion with an examination of the actual data. The Eurozone has failed and an orderly dismantling of the entire monetary system with a return to floating sovereign currencies is the only way that any semblance of prosperity will return.

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The lesson for the Europeans is that the US fiscal stimulus worked

Today, I was reading the latest report from the US Congressional Budget Office – CBO’s Estimates of ARRA’s Economic Impact – which shows that the American Recovery and Reinvestment Act of 2009 (ARRA) has been successful in increasing real GDP growth in the US and reducing the rise in the unemployment rate. Some simple calculations reveal that in the absence of the ARRA US economy would still be in recession. That is, taking a European trajectory. There is also evidence that the Obama administration were presented with analysis that showed that a much larger stimulus than was chosen was necessary, yet this information was suppressed in final documents that were the basis of the fiscal intervention. It seems that the neo-liberal ideologues within the Obama camp deliberately undermined the fiscal intervention and so its impact, while positive, was far less than was required. I also read an interview with the ECB president, Mario Draghi today. The ECB is now pushing fiscal austerity as the only way out of the Euro crisis. In juxtaposition to the US experience, the Europeans remain fixed to the view that saving the flawed institutional structure (that is, the EMU) is a higher priority than insuring that people prosper. The lesson for the Europeans is that the US fiscal stimulus continues to work.

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The politicians in Europe and the UK are deliberately sabotaging their economies

Eurostat published their latest National Account estimates for the Eurozone on Wednesday (February 15, 2012) – Flash estimate for the fourth quarter of 2011 – which allows us to complete the picture for the 2011 calendar year. Overall, the results are appalling. Many nations are now double dipping and even the European powerhouse, Germany contracted last quarter. Over the Channel, the British economy also contracted in the 4th quarter 2011. None of this should come as any surprise. An economy cannot grow when the private sector is deleveraging and is in constant fear of unemployment and the public sector deliberately refuses to step in and provide fiscal support. It is even worse when the government further undermines the capacity of the private sector to spend (by harsh cuts in pensions etc) and cuts its own net spending into the bargain. As one commentator noted yesterday “it makes no sense to drive an economy into recession where it stops people from working and thus paying more taxes” if the goal is to reduce budget deficits. The political leadership in Europe and the UK is deliberately sabotaging their economies. The same mentality is gathering pace in the US. Spare us!

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The German model is not workable for the Eurozone

I had an interesting meeting in Melbourne yesterday and the topic of the discussion, among other things, was the propensity of the current economic malaise in Europe to invoke associations with its historical past – in particular, the rise of the ugly German. In my blog earlier this week (January 30, 2012) – Greece to leave the Eurozone and become a German colony – one might have been tempted to conclude that I was invoking memories of the Germany’s annexation of Austria (the Anschluss). I even used the word Teutonic – a rather old-fashioned term for Germanic peoples (broadly) – in the phrase “My how audacious our Teutonic friends have become!”. This was in a discussion about the leaked German document which urged the EU Summit on Monday to effectively put Greece into receivership. But in fact, what I have been at pains to bring to the public debate is not an urging that we construct the current nasty statements from German politicians and its press about lazy Greeks etc in terms of these historical enmities but rather see them for what they really are – deeply flawed macroeconomic reasoning. A thorough understanding of macroeconomics would lead to the conclusion that the German model is not workable for the Eurozone. It will not help Germany nor anyone else. It is a deeply flawed economic doctrine that reflects the same neo-liberal ideology that led to the the original design of the European Monetary Union. Whether the “ugly German” is also implicated is another question altogether.

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Latest ECB data shows how bad things have become in Euroland

I was reading the recently published January 2012 Monthly Bulletin from the ECB yesterday. It provides a massive amount of interesting data about the developments in the Eurozone plus analysis. The descriptive analysis is fine (this went up, this went down) but the conceptual analysis leaves a lot to be desired. This is an institution that still talks about reference values of broad money as a policy target to control inflation. Basically, that idea has no application in our monetary system. But that aside, the release of the latest M3 data tells us how bad things are getting in the Eurozone and do not augur well for the coming year, despite the up-beat forecasts for real GDP that the ECB are still providing. The latest ECB data shows how bad things have become in Euroland.

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Greece to leave the Eurozone and become a German colony

The Euro leaders are having another Summit in Brussels today – another one – the 17th in two years. I think they are getting used to the nice wine and sumptuous food that is served up. Little ever comes from these summits that is of any productive import. This time they plan to set in concrete balanced budget rules to be embedded into the national legislation of EU member states yet at the same time propose job creation and growth strategy. The job creation strategy is allegedly going to focus on the youth of Europe who are becoming unemployed and excluded in increasing numbers as time goes by. The lunacy is that Europe’s youth started losing their jobs some years ago yet the leaders are now expressing concern. Also over the weekend, there was a leaked German proposal for today’s summit detailing how Greece should leave the Eurozone and become a German colony. My how audacious our Teutonic friends have become!

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Rehn fiddles, while Europe burns

According to the popular legend Nero, Roman Emperor from 54 to 68 and the last in the Julio-Claudian dynasty allegedly “fiddled while Rome burned” (played his lyre and singing) during the fire in 64 which destroyed most of Rome. His rule (and dynasty) ended 4 years later. The imagery of this out-of-touch and cruel leader strumming/plucking his stringed instrument (rumour notwithstanding) while his city and, soon after, his dynasty collapsed is powerful. Last Friday, Eurostat released the latest unemployment data for November 2011. The results were shocking with unemployment rates in Spain now close to 23 per cent (as at November 2011 and rising) and Greece 18.8 per cent (as at September 2011) and rising. Greece’s unemployment rate rose 4.8 per cent in the first 9 months of last year. Meanwhile, the European Commission is occupying itself with other concerns. Its Economic and Monetary Affairs Commissioner and Vice President, Olli Rehn has been sending letters out to member states indicating that he is disappointed they are falling behind their budget deficit reduction targets under the Excessive Deficit Procedure (embedded in the Stability and Growth Pact) and that the EC would be considering fines.

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The Eurozone failed from day one

The current Eurozone crisis is getting worse and has concentrated our minds on the most recent period of European history. As in all these situations where focus is very immediate our memories get a little blurred and we are inclined to accept propositions that closer analysis of the data suggest do not hold water. January 1 was the tenth anniversary of the date when Euro notes and coins began to circulate. It had of-course been operating since January 1, 1999 but only in a non-physical form (electronic transfers etc). If you believe the rhetoric from the Euro bosses in the first several years of the Euro history and didn’t know anything else you would be excused for thinking that it was a spectacular success. The Celtic Tiger, the Spanish miracle, the unprecedented price stability and all the rest of it. But the reality is a little different to the hype. The fact is that the common currency did not deliver the dividends that were expected or touted by the leaders leading up to the crisis. All the so-called gains that the pro-Euro lobby claim were in actual fact a sign of the failure of the design of the union although it took the crisis to expose these terminal weaknesses for all to see. My view is that the Euro was failing from day one and it would be better to disband it as a failed experiment that has caused untold damage to the human dimension.

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Euro malaise heads to the core

Yesterday (December 26, 2012), the French Ministère du Travail, de l’Emploi et de la Santé (Ministry of Labour, Employment and Health) released the latest labour market data for November 2011 which showed that the number of people seeking jobs (demandeurs d’emploi) had risen sharply in the last month. The data shows that the Euro malaise is now penetrating the core large economies in the Eurozone as the impacts of fiscal austerity spreads. It is interesting that the continued fiscal support in the US which is only surviving because the politicians have created a temporary impasse is seeing unemployment falling whereas the trend is now in reverse in the Eurozone. The neo-liberal infested Euro bosses are proving to be much more adept at destroying their economies than their counterparts across the Atlantic.

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A dose of truth is required in Europe

I was going to write about the True Finns today to report some research I am doing at present aimed at exposing how the “left” political parties have ceded legitimate progressive issues to fringe parties who then meld reasonably sensible economic issues with offensive social and cultural stances to create a popular but highly toxic political force. The True Finns who gained 19 odd per cent of the vote in the April 2011 national election exemplify this trend. The Euro crisis is accelerating the growth of the popularist political forces in Europe who are anti-Euro (pro-nationalist) and who will not (I suspect) tolerate the Euro elites impinging on national affairs and imposing a decade or more of enforced austerity. There are political movements/parties all over Europe now (for example, Vlaams Belang, Le Pen, Lega Nord etc) which fit this mould. It would be far better for the mainstream progressive parties around Europe to take the initiative and retake control of the policy debate on what should be bread-and-butter issues for the left. Sadly, these mainstream left parties have become totally co-opted by the neo-liberal agenda and speak the same economic voice as the conservatives. The problem then is that the public debate is distorted by untruths which further reinforce the malaise. A dose of truth is required in Europe.

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It became necessary to destroy Europe to save it

The message to be drawn from this blog is that the dithering Euro bosses have done it again. Amidst all the bluster about stability and moving forward together all they have done last week (at the EU Summit) was further undermine the prospects of their region. The new rules that have seemingly been agreed upon will not be achievable and will generate even more financial instability as growth deteriorates further. In early 1968, amidst all the lunacy of the Vietnam War, an American general told a New Zealand reporter that the US decision to bomb a town full of civilians into oblivion was based on the logic that “It became necessary to destroy the town to save it”. Last week’s (December 9, 2011) – Statement by the Euro area Heads of State or Government – invokes that sort of logic except in this case the brutality is of a different degree and style. Neither action was justified in the circumstances that the decision-makers faced.

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Going right to the top in Europe

I woke up to the headlines this morning about the apparently failed German bond tender yesterday and all the experts predicting doom. In my E-mail box there was around 30 requests for an explanation from readers who had read the news and concluded that it was a major event in the current crisis but didn’t really understand what the implications were. The implications are fairly simple – the bond markets are working out that no EMU government is free of insolvency risk because they all use a foreign currency (the Euro). Germany is better placed to resist the crisis because of the relative strength of its economy but it is not immune from it. Its economy will also deteriorate as the effects of austerity spread out through trade. While the “experts” waxed lyrical about the crisis being confined to profligate EMU states (the PIIGS), it was always clear that the northern strong-hold states were going to be dragged in as the crisis deepened. That is because the problem is the Euro itself and the way the monetary system is designed. All the other emotional stuff about lazy Greeks is a sideshow. Germany is starting to find that out – yesterday, it received its first strong message. The crisis is going right to the top in Europe now.

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The hypocrisy of the Euro cabal is staggering

As they say in the classics – “some of my best friends are” … and in my case I might have added German. The Euro crisis – that is, the crisis that has arisen because the creation of the Euro stripped member nations of their capacity to defend their economies against negative private spending episodes – is being worsened because of the incredible resistance by Germany and the Troika (EU, ECB, IMF). The Brussels-Frankfurt consensus – which claimed the creation of the Eurozone would engender stability and growth is shattered – irretrievably humiliated one might venture to say – yet the cabal that hides behind that “consensus” maintains power and influence. The hypocrisy that the cabal engage in is staggering. Their narrative is almost totally dislocated from the reality. They regularly disregard their own rules to favour the vested interests that keep them in power. And meanwhile, they are overseeing a collapse of all the ideals they claimed their system was designed to achieve.

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