The economics news is currently dominated by the Greek election results and their implications, and, rightly so. Without assuming anything about how much Syriza will compromise (although I suspect too much), the voting has demonstrated that a large proportion of voters in Greece have rejected the basis of the European Commission strategy. The Greek voters know from personal experience, what armchair commentators like me know from theory, that fiscal austerity fails to achieve its aims. It is not rocket science – spending equals income and if you hack into it then the economy contracts. A private spending resurgence is not going to happen when sales are falling, unemployment is sky-rocketing, and incomes are being lost. The basis of Keynesian economics – that when the private economy is caught in a malaise the way out is for government deficits to kick-start economic activity, which, in turn, engenders confidence among private spenders and allows a sustainable recovery to occur – has been amply demonstrated by the GFC in all nations. Where that strategy has been employed the nations have been recovering (at a macroeconomic level). Where it has been defied, such as the Eurozone, the economies have stagnated. Thinking ahead (speculating) the election results have clearly shocked the cosy ECOFIN club, which has smugly swanned around Europe over the last 6 or so years dishing out misery to the disadvantaged citizens in the Member States. But I doubt that they will agree to a 50 per cent write-off in Greece’s debt because then the citizens of Spain, Italy and, even France, would line up for the same. Then it is game-over for the Eurozone. More likely, if Syriza sticks to its promises, then there will be an organised way to ease them out of the game. Greece will win either way.

It seems that Greece is still in trouble with the Athens Stock Exchange share prices tumbling rather abruptly in recent weeks. In the last 6 days or so the Athens Stock Exchange Composite Index has plunged by around 19 per cent on the back of growing political tension and the strong likelihood that the pro-austerity, Troika surrender monkeys in power at present will be tossed out and a new dialogue with Europe will begin. The snap election call has spooked the markets it seems. But I have also been puzzling about (read: been deeply suspicious of) the growth narrative that is being peddled about Greece by the European Commission and the IMF. There remain unsolved puzzles about the third-quarter 2014 Greek national accounts data, which is another way of saying they don’t quite add up. It may be that the alleged real GDP growth of 0.7 per cent was a statistical artifact – the case of incomes falling less slowly than prices. The evidence certainly suggests that is the case. That is what this blog is about.

The battlelines between the European Commission and France and Italy over the – Corrective arm – of the Stability and Growth Pact are firming up after the Italian Government publicly released a ‘strictly confidential’ letter from the Vice President of the European Commission – La lettera della Commissione Europea all’Italia – on the homePage of the Ministry of Economy and Finance late last week. The European Commission expressed hostility towards the Italian government hinting that there was a lack of trust involved. Nothing could be further from the truth. The fact is that the Commission wants to keep its dirty work away from the public eye because it knows that deliberately creating unemployment and poverty is not exactly an endorsement for its common currency model. But this little skirmish last week between the technocrats and the Italian government is just part of a war that is to come over the implementation of the Excessive Deficit Procedure in both France and soon, Italy. We have been here before – 2002-03 – but this time, Germany was in the trenches with France. Now it is playing the role of the enforcer. It all goes to show however, if we ever needed reminding what a sorry, failed enterprise the Eurozone actually is.

The French government is in tatters after a number of the more enlightened members of parliament resigned as a protest against the mindless austerity that Hollande is imposing on his nation, which is causing the already desperate unemployment situation to worse. Le Monde ran a story (August 25, 2014) – La dernière chance du président (The last chance for the President) and said that the political season just became explosive for the President and the Prime Minister as a result of some of his senior ministers walking out in protest over the austerity obsession that Hollande has imposed on the French government. Despite all the scaremongering that financial markets love austerity and see it is a move to stability, the ‘markets’ appear to be rejecting austerity and voting for growth. We will see.

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.

There was an interesting article in the Financial Times last week (August 29, 2013) – The German miracle is now running out of road – about the myopia of policy settings in Germany. The FT author was Sebastian Dullien, who has been consistently presenting the case that Germany is not a role model for the rest of Europe to follow. For example, see – A German model for Europe?. He notes that by targetting a budget surplus in a period of fiscal austerity, the Germans are undermining the very factors which made their manufacturing sector some strong. Their public investment in education and infrastructure is now lagging so much that the costs of business are rising in Germany and the long-term consequences of this are likely to be very damaging. The stupidity of the German ideology will come back to haunt them.

Mr Barroso, European Commission President has a way with words. In January 2013, he declared “that the existential threat against the euro has essentially been overcome”. More recently (April 3, 2013) he pronounced “that the EU has come through the worst of the crisis”. Really? And, just yesterday he was at it again, lecturing France on the need to hack into welfare payments and worker protections. Meanwhile, Eurostat released the first-quarter 2013 National Accounts publication – Euro area GDP down by 0.2% and EU27 down by 0.1% – a few hours after Barroso was on French radio delivering his threats. The data is shocking which is a euphemistic way of saying _ _ _ _ _ _ _ (fill in your own expletive). There are now 10 Eurozone nations in recession. The overall monetary union has been contracting for six consecutive quarters (that is, 1.5 years). And the situation will deteriorate even further. When does someone conclude that the current policy framework is a total failure and causing massive permanent damage? When will these lug heads in Brussels realise they are not only destroying the fabric of prosperity but also jettisoning their political aspirations – for one Europe? Amazing.