Latest data – largest quarterly output decline in recorded US history – but Europe is worse

The US Bureau of Economic Analysis (BEA) released the – Gross Domestic Product, Second Quarter 2020 (Advance Estimate) – data last week (July 30, 2020). It shows that the US economy has declined by 9.49 per cent between the March- and June-quarters. On an annual basis the decline was 9.54 per cent. This is the largest quarterly contraction in recorded history. Consumption expenditure declined by 10.1 per cent in real terms and business investment by 17.4 per cent. The collapse in consumer expenditure was mostly concentrated in services (-22.6%), which reflected lockdowns and the unwillingness of consumers to continue normal practices. Personal saving as a percentage of disposable personal income jumped dramatically from 9.5 per cent in the March-quarter to 25.7 percent in the second quarter. That is a testament to the endemic uncertainty that the pandemic has created. The contribution of net exports actually rose, not because exports rose (their individual contribution was -9.38 points), but because of the slump in imports – a smaller leakage from the expenditure system (adding 10.1 points t growth!). Overall, there is no trend – just a massive mess. How the second wave of the virus impacts is anybody’s guess but lots more deaths and more disruption is certain.

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Government goes missing in the European Union

On Tuesday (June 9, 2020), Eurostat published the March-quarter national accounts data for the EU and the Eurozone – GDP down by 3.6% and employment down by 0.2% in the euro area – which revealed that the decline in GDP “were the sharpest declines observed since time series started in 1995”. Of course, Europe went into this crisis in poor shape. Eurostat noted that “In the fourth quarter of 2019, GDP had grown by 0.1% in both the euro area and the EU.” So it was barely crawling anyway due to the austerity bias that is built into the monetary system. The larger Member States such as France and Italy (-5.3 per cent) and Spain (-5.2 per cent) are in terrible shape. In the last few weeks, we have been hearing and reading a lot of hype from European politicians about ‘Hamilton moments’ as various euro figures are bandied around about government support for the European economy. Emma Clancy’s article (June 6, 2020) – Behind the Spin on the EU’s Recovery Plan – is sobering if you are drunk on all the Euro elite hype. There isn’t really a recovery plan at all nor any significant shift in attitudes towards creating a functional federation, the only structure that will see Europe break free of this austerity bias. And as I examined the Eurostat data in more detail something very stark was apparent.

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Eurozone inflation heading negative as the PEPP buys up big – don’t ask the mainstream to explain

Governments save economies. Never let a mainstream economist tell you that government intervention is undesirable and that the ‘market’ will sort things out. Never let them tell you that large-scale government bond purchases by central banks lead to inflation. Never let them tell you that the government, when properly run, can run out of money. There is unlimited amounts of public purchasing capacity. The art is when to apply it and how much to release. That can only be determined by the behaviour of the non-government spending and saving and the state of idle capacity. It can never be determined by some arbitrary public debt threshold or deficit size. And the central bank can always buy however much debt they choose. At present the ECB is buying heaps and keeping the Member States solvent. That is not its state role but given there is no other institution in the Eurozone that can serve the fiscal function effectively and ‘safely’, it has to do that. Otherwise, the monetary union would quickly dissolve. I would take their bond buying programs further and write off all the debt they purchase. Immediately. Go on. Just type some zeros where they have recorded large positive Member State debt holdings. That would be something good to do in a terrible situation.

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BVerfG decision once again exposes the sham of the Euro system

It is Wednesday and I have a lot of commitments and deadlines hanging over me today. But I thought I would briefly comment on the yesterday’s – Decision – by the Bundesverfassungsgericht (German Federal Constitutional Court) (May 5, 2020) on the legality of the ECB’s Public Sector Purchase Programme. The BVerfG concluded that the ECB has been operating ultra vires and made orders as appropriate, which bind the German government and the Bundesbank and demonstrate once again the myth of central bank independence. There is all sorts of angst being expressed out there about this decision and progressive Europhiles are almost apoplectic. But it won’t surprise you to know that I think the Court made the correct judgement by exposing the complete sham that the European Union and the Eurozone, in particular, has become – an illegal, look-the-other-way, neoliberal cabal that the Union has become.

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The European Commission non-stimulus is a waiting game before new austerity is imposed

Things are a little odd when a Minister for Finance & Public Expenditure and Reform of a nation (Ireland) informs the press that if his government isn’t cautious in its fiscal response to the largest medical and economic crisis in a century then the “bond vigilantes” will turn on them. And this is in the context of governments around the world issuing long-term debt at negative interest rates and the relevant central bank is buying billions of government bonds with its currency-issuing capacity. But that is what the Irish Finance Minister did last week ((Source). Fear of God strategy Number 1. That still works in god-fearing places. He referred to the “the fiscal architecture we are anchored in within the euro area” which will ultimately impose Excessive Deficit Procedures as the medical crisis eases (see his April 23, 2020, Speech on Stability Programme Update). Code for a renewed bout of austerity once people have stopped dying. A wonderful prospect. And while currency-issuing governments around the world are introducing variously large direct fiscal stimulus packages (that is, spending going into the economy immediately), the European Union is once again demonstrating their inability to respond to crisis. Nothing has been learned from the GFC.

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The EU outdoes itself in the madness stakes

One of the themes I exercised when speaking in Europe recently, particularly when presenting at the French Senate Commission and the Ministry of Finance, was that by pushing European integration into an unworkable currency union and refusing to budge, the European political class was undermining the valid aspects of the ‘European Project’, which the likes of Jean Monnet and Robert Schuman saw as a way of bringing peace to the Continent after several attempts by Germany to usurp the rights of citizens in other European nations through military endeavours. Research released by the The PopuList Project, which is a UK Guardian motivated attempt to bring together academics and journalist to study shifts in European voting sentiment since 1989, is rather alarming for those who hang on to hope that the European Union is capable of progressive reform. And the latest shenanigans in the European Commission and the Council over the ‘Budget’ is indicative of why the PopuList Project is generating such results. If there was foresight among the leaders in Europe they would take a step back and restore national currencies and restore the quality of European democracy, which has been significantly compromised since the 1990s.

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Eurozone 2020. Don’t mention the War!

I guess I cannot avoid commenting on the European Commission’s recently released (February 5, 2020) – Economic governance review – which, allegedly, “seeks to assess how effective the economic surveillance framework has been in achieving three key objectives: ensuring sustainable government finances and economic growth, as well as avoiding macroeconomic imbalances; … promoting convergence in Member States’ economic performance.” The short answer is that the framework has failed on all fronts. The Member State fiscal situations are always mostly teetering on the edge of insolvency and only the ECB has been bailing them out; macroeconomic imbalances that really matter, such as the on-going illegal German external surpluses persist, and divergence is the Eurozone norm. Why? Another simple answer: because the architecture of the currency union is deeply flawed and biases the economies to crisis and makes them vulnerable, in an existential sense, to fluctuations in global activity. Why would they have done that? Answer: the triumph of neoliberal ideology over reason.

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European Union – business as usual as the madness continues

At the weekend, the German Social Democratic Party elected a new leadership from the Left of the Party, in the hope of resurrecting their disastrous political standings (Source), In rejecting the other main contender, current Finance Minister Olaf Scholz, the decision has apparently threatened the GroKo (Große Koalition), the coalition between Merkel’s CDU/CSU union and the SPD, which, arguably, has been the reason for the declining fortunes of the SPD. They have, in effect, abandoned their charter and become part of the neoliberal, austerity machine. The new leadership rejects the basis for the GroKo. At present, the SPD is only marginally ahead of the far-right AfD with the Union and Greens ahead of them. The same political dislocations are happening throughout Europe although the antagonism to the neoliberal austerity orthodoxy is more manifesting in chaos than a defined direction away from the major political parties (Britain is currently a good example of that). Meanwhile, the orthodoxy continues in the European Commission and in its – Autumn 2019 Economic Forecast: A challenging road ahead – they are requiring the majority of Member States to inflict more austerity on their nations even though a recession is looming. That is, business as usual as the madness continues.

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China slowdown highlights the madness of the Eurozone austerity

Last Friday (October 18, 2019), the GDP data for China was released and we learned that growth has slowed quite significantly. The ABC news report – China’s economy hits three-decade low, with GDP growth falling to 6pc – suggested that this is the “fifth consecutive quarter of slowing growth” and a fall of 0.2 points from the last release. Its trade accounts reveal slower exports growth, and, importantly, slower import growth as growth in domestic demand declines. That last fact should raise fears of recession for the Eurozone elites, who have been content to export their austerity bias and rely on spending within other nations (outside the Eurozone) to maintain the weak growth that we have witnessed. The chickens are coming home to roost at present and the irony of all this is that ultimately German and Dutch external surpluses will fall below the allowable EU imbalance threshold of 6 per cent of GDP, not because those nations are doing anything sensible to address their damaging stance, but, rather, because their economies have become dependent on export growth and with China slowing that will hurt them badly. In other words, they will only come back within the EU laws through domestic recessions, and then, their fiscal positions will come under scrutiny again. A crazy system.

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Euro policy elites deliberately destroyed jobs and income to achieve erroneous fiscal goals

As Mario Draghi’s tenure at the helm of the ECB draws to a close, he becomes (slightly) more pointed and looser with his public statements. On Friday (October 11, 2019), he gave a speech – Policymaking, responsibility and uncertainty – at the Università Cattolica in Milan on the occasion of receiving the Laurea Honoris Causa (honorary degree). He broadened the scope of his policy ambit by saying that “I will not focus strictly on monetary policy or the business of central banking, but I would like instead to share my thoughts on the nature of policy responsibility.” In the same week, the Eurogroup (the European Finance Ministers) of the European Commission released a press release – Remarks by Mário Centeno following the Eurogroup meeting of 9 October 2019 (October 10, 2019) – which announced that they had agreed to a “a budgetary instrument for the euro area – the so-called BICC”. Don’t get too excited. The BICC will only achieve the status of an “Inter-Governmental Agreement”, meaning it will not be embodied in the Treaties. Also, the Member States will have to contribute funds in advance and must “co-finance” withdrawals. And, as usual, there was no mention of the fund size, which will be miniscule if history tells us anything. But this is all context for Mario Draghi’s Speech.

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The EU pronouncement of a Greek success ignores the reality

I keep reading ridiculous articles about Brexit in the UK Guardian. The latest was comparing it to pre-WWI Britain and suggesting there were no signs of a “Damascene moment remainers hoped for”. I thought that reference was apposite – given the reference invokes St Paul’s conversion after he was struck blind. Good analogy – blind and remainer. The Brexit imbroglio is all the more puzzling because it seems to be a massive mismatch of scale – a currency-issuing nation and an organisation with no currency and no democratic legitimacy. And that is before one even contemplates the nature of that organisation. On August 20. 2019, the European Union provided us with a perfect example of why no responsible government would want to be part of it. In its – Daily News 20/08/2019 – there were three items. The last item told us that construction output in the EU28 had declined by 0.3 per cent in June 2019. The first item was a sort of cock-a-hoop boast about how great Greece is after the EU saved it from disaster. Parallel universe sort of stuff. Britain will thank its lucky stars after October 31, 2019 when it goes free from that madness. Even though the remainers remain ‘blind’ without their Damascene moment”

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Europe should stay out of the race for IMF head

My Wednesday blog post is designed to be short in time commitment. It clears a bit of space in the day to catch up with other more mundane matters (research contracts, some coding – I am learning Swift at present, and stuff like that). But I thought a small viewpoint on the latest dealings over who will become IMF boss were easy to dispense with today. And in that context, it was hard to go past Wolfgang Münchau’s Financial Times column – Do not treat the IMF as an EU consolation prize (July 21, 2019). He sums up the situation perfectly – “The world needs a first-rate person to run the IMF. It should not allow Europe to treat the fund as a dumping ground for washed-up officials.” Adam Tooze also weighs in on the same issue in his Social Europe article – The International Monetary Fund leadership is not a bargaining counter (July 22, 2019). His conclusion is also spot on – “The eurozone crisis created a toxic codependency between the eurozone and the IMF which needs to be dissolved once and for all.” But it goes beyond the revolving door aspects of these positions and the Troika relationship that emerged during the GFC. The IMF is already in tatters – still in denial but realising its old positions are untenable – to allow the toxic austerity culture of Europe to take over the IMF would destroy any hope that the latter might abandon its neoliberalism and embrace the emerging macroeconomics paradigm that will replace dependency on monetary policy with fiscal dominance – just what Modern Monetary Theory (MMT) has been promoting.

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That progressive paradise (aka the EU) does it again!

I saw a Tweet overnight suggesting the so-called progressive British Remainers had been a little quiet in recent days following the comical display of anti-democratic, corporatism aka filling leadership positions in the EU and the Eurozone. Where are they? Why aren’t they out there in the media (social or otherwise) extolling the virtues of their much-loved European Union, where progressive policies are the norm and the peoples’ interests are held above the narrow corporate interests? The problem is that they cannot show up at present. The EU has managed to appoint a cabal of new leaders, many of whom are plagued by past scandals, allegations of nepotism, convictions for negligence in public office, and the Presidential nominee is under investigation in the Bundestag and has been acknowledged as a failure in her management of the German defense department. Come to think of it they seem perfect for the top jobs in the EU. And how was this motley lot selected? By denying even the limited sense of democracy that has been present in this process in the past. It is beyond a joke. But then this is the Europhile cosmo left’s vision for the future. One could not dream all this stuff up one they tried.

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The European Union once again reveals why it should be dissolved

While the Europhile progressives are publishing papers and holding talkfests to discuss their latest EU reform proposals, the on-going reality of the European Union continues to reveal itself – the pretense that there is a rule of law operating – as laid out in the Treaties and the idea that all are equal under that law. When I was researching my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – and over the long period I have studied the concept of European integration it was obvious to me that despite the chimera of a strict, rule-based system that is run by technocrats, the actual practice of the Union is vicariously ad hoc – rules applied in cases where doing otherwise would present ideological problems, abandonment of the rules and outright illegal behaviour when there the interests of the corporate elites are at stake or the existence of the Union is threatened. And while law breaking, relevant officials produce complicated justifications of their behaviour as if what they are doing is within the boundaries specified by the Treaties. The Europhile progressives, meanwhile, continue to hold this embarrassing monstrosity out as the exemplar of freedom, globalism, cosmopolitanism and sophistication. They have reached such a state of denial that what is obvious to those looking in from the outside escapes their attention, or, in the mould of the European technocrats they just ride along with the spurious justifications for the unjustifiable. Europe in 2019.

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We are all entrepreneurs now marching towards a precarious and impoverished future

Some years ago, I was a panel speaker at an event in Sydney covering the topic of wage developments. I shared the podium with a young woman who was something like NSW Youth of the Year. It was at a time that employer groups were lobbying the conservative government to abandon penalty rates for workers in low-wage industries (hospitality, tourism, etc) and strip powers from trade unions. I spoke about how that agenda was designed to advance their class interests and fitted squarely with the neoliberal intent to redistribute real income away from workers towards profits. The young woman followed and announced that class was dead and that there was no such thing as a worker anymore – she said “we are all entrepreneurs now!”. Prior to that, as our national government was privatising our public companies such as Qantas and Telstra, our prime minister announced “we are all capitalists now” referring to the idiocy of people buying shares in the companies that we collectively ‘owned’ anyway while they were in public hands. The more recent manifestation of this delusion that class is dead and we are all entrepreneurs is the so-called ‘gig economy’. It seems that we now have millions of people (first young but increasingly older) who think that entrepreneurship is about buying a cheap scooter and tearing around streets delivering pizzas in all weather to earn a few dollars while the companies that ’employ’ them (or rather contract them) walk away with millions. These workers, sorry, entrepreneurs, face a bleak future. When there are no pizzas being ordered they have no shifts. When they are sick they have no pay. When they go on holidays they have no pay. And when they get old they will have no superannuation. Sounds like a plan to make someone rich.

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Being anti-European Union and pro-Brexit does not make one a nationalist

The European Parliament elections start today and finish at the weekend (May 23-26). The Europe Elects site provides updated information about the opinion polls and seat projections, although given the disastrous showing of the polls in last Saturday’s Australian federal election, one should not take the polling results too seriously. But it is clear that there is an upsurge in the so-called populist parties of the Right at the expense of the traditional core political movements (centre-right and centre-left). It is also easy to dismiss this as a revival of ‘nationalism’ based around concepts of ethnicity and exclusivity and dismiss the legitimacy of these movements along those lines. However, that strategy is failing because the ‘populist’ parties have become more sophisticated and extended their remit to appeal more broadly and make it difficult to relate them to fascist ideologies. The fact that the progressive (particularly Europhile variety) continue to invoke the pejorative ‘nationalist’ whenever anyone begs to differ on Europe and question why they would support a cabal which has embedded neoliberalism and corporatism in its very legal existence (the Treaties) is testament to why the traditional Left parties are showing up so badly in the polls these days. The British Labour Party, for example, should be light years ahead of the Tories, given how appalling the latter have become. But they are not a certainty if a general election was called and the reason is they have not understood the anxieties of the British people and too many of their politicians are happy to dismiss dissent as being motivated by racism. The Brexit outcome so far is a good case study in that folly.

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Eurozone horror story continues

Eurostat released the latest fiscal data for 2018 on Tuesday (April 23, 2019) which showed that – Euro area government deficit at 0.5% and EU28 at 0.6% of GDP – apparently a cause for celebration if you can believe the news reports that have accompanied the data release. The problem is that these numbers are meaningless without a context. And a relevant context is how well the monetary system is accommodating the advancement of material well-being among the citizens of Europe. On that ‘functional’ criterion, the horror story, more or less continues. Data relating to the real world (as opposed to the world of fiscal numbers on bits of paper) tell us that the damage from the GFC interacting with a dysfunctional monetary system design still lingers and the 19 Member States are still highly vulnerable to the next crisis. The austerity mindset remains and these fiscal outcomes indicate a failure of policy. Nothing to celebrate at all.

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The Europhile dreamers are out in force

It appears that the Brexit process in Britain will now stall. My understanding of the Referendum was the majority of British people who voted wanted to leave the EU and that the politicians from all sides of politics unambiguously stated they would honour the outcome, whichever way the vote fell. That is what democracies are about. A lot of people are disappointed by vote outcomes. They have to grin and bear it. But in the case of the Brexit vote, the Remainers have never accepted the outcome and have used various means – foul or otherwise – to undermine the choice of the majority. There have been regional strains involved and social class strains (cosmopolitans and the rest) involved. There have been nasty imputations that those who voted to Leave were ignorant, racist or otherwise not entitled to cast an opinion. The Europhile Left had conniptions because their dream looked like evaporating. I use the term ‘dream’ deliberately – as in, not ground in reality. As the incompetence of the Tory government in managing the exit process reaches new heights – embarrassing heights – the Europhile Left has become emboldened and are now reasserting their claims that the British Labour Party should articulate a clear Remain position and push to reform the prevailing European treaties, which embed neoliberalism in their core. Talk about dreaming.

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Left logic – the neoliberal EU cannot be reformed but exit is bad

I have just finished reading a recently published book – The European Illusion – written by academics associated with Attac Austria and it demonstrates the dilemma that European progressives have created for themselves. The 348-page book is freely available in – PDF – for download. The dilemma slowly reveals itself as the various chapters unfold. The format of the book is odd – conventional prose, interviews between the contributors, and opinion pieces. As we transit through the book we learn that the European Union is neoliberal central. Okay, that is a helpful start to a progressive vision. Then we read that, as such, it is impossible to reform. We learn that movements such as DiEM 25 are dreamers. Getting better! But then we read that Lexit strategies are unhelpful and a sort of Project Fear rationale is proffered – risky, uncertain and the rest. So, on the one hand, the EU is a disaster that has deliberately set out to destroy the working class and that that cannot be reformed. But, on the other hand – TINA – it is counterproductive to dismantle it. Solution – a grassroots campaign of rebellion – “strategic disobedience”. It beggars belief actually. Apparently, we can democratise neoliberal central by disobeying the EU rules, even though the EU cannot be reformed. Yes, and pigs might fly!

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German growth strategy falters – exposes deep flaws in the EU architecture

Last week (February 14, 2019), Eurostat released its latest national accounts estimates – GDP up by 0.2% and employment up by 0.3% in the euro area – which confirmed that EU growth rates have declined significantly over the course of 2018. Moreover, the December-quarter data confirmed Italy is in official recession and Germany recorded zero growth (thereby avoiding the ‘technical recession’ category after contracting by 0.2 per cent in the September-quarter). Export expenditure accounts for nearly 50 per cent of Germany’s GDP – a massive proportion. It has adopted a growth strategy based on impoverishing its own residents through flat wages growth and a sustained proportion of low-paid, precarious jobs and setting its sail on sucking out expenditure from other nations (in the form of their imports). This has been particularly damaging to the Eurozone partners but also exposes Germany to the fluctuations in world export markets. Those markets are softening for various reasons (economic and political) and, as a result, German growth has hit the wall. The solution is simple – stimulate domestic demand, push for higher wages for workers, outlaw Minijobs, and start fixing the massively degraded public infrastructure that the austerity bent has starved. Likelihood of the German government adopting that sort of responsible policy. Zero to very low. There is the problem of the Eurozone from another angle. The main economy cannot play the game properly.

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