It is fiscal statement (aka ‘budget’) frenzy in Australia at present, with the Treasurer about to bring down the annual policy strategy tonight. There is so much claptrap in the press and electronic media that I have tried to avoid saying anything about it. I may stick to that. I have been trying to understand the French election results though. That has occupied my attention a bit given the success of Macron (where a record number of voters stayed away and he barely scraped through the first round). He will be proven to be duplicitious I think. He is a Eurocentric neo-liberal who is anti-union, largely, anti-regulation and state intervention and believes the ‘market’ and an incentivised middle-class will do the trick for France. He is caught up in the Europe thing and so cannot see that the Eurozone straitjacket will ensure a growing underclass is retained. There was some interesting research published by a private investment bank (BOAML) – Job Quality and Escape Velocity – which provides a rather sombre view of the much-touted Eurozone ‘recovery’ over the last three years.

One of the various smokescreens that were erected by the European Commission and the bevy of economists that it either paid or were ideologically aligned to justify the design of the monetary union around the time of the Maastricht process was the concept of subsidiarity. In 1993, the Centre for Economic Policy Research (a European-based research confederation) published its Annual Report – Making Sense of Subsidiarity: How Much Centralization for Europe? – which attempted to justify (ex post) the decisions imported from the 1989 Delors Report into the Maastricht Treaty that eschewed the creation of a federal fiscal capacity. It was one of many reports at the time by pro-Maastricht economists that influenced the political process and pushed the European nations on their inevitable journey to the edge of the ‘plank’ – teetering on the edge of destruction and being saved only because the European Central Bank has violated the spirit of the restrictions that a misapplication of the subsidiarity principle had created. It is interesting to reflect on these earlier reports. We find that the important issues they ignored remain the central issues today and predicate against the monetary union ever being a success.

On March 24, 2017, the Portuguese government (via Instituto Nacional de Estatística or Statistics Portugal) sent Eurostat its – Excessive Deficit Procedure (1st Notification) – 2017 – which is part of the formal process of the EU surveillance on the fiscal policy outcomes for Member States. The data submitted to the EU showed that the Government had reduced its fiscal deficit from 4.4 per cent in 2015 to 2.1 per cent in 2016, thus bringing it within the Stability and Growth Pact rules (below 3 per cent). However its public debt to GDP ratio rose modestly over that time from 129 per cent to 130.4 per cent. The other stunning fact presented, which hasn’t received much attention in the media, was that government spending on gross fixed capital formation fell from 4,049.3 million euros in 2015 to 2,879.6 million euros in 2016, a 29 per cent decline. Further, real GDP growth has been positive for the several quarters now and this has boosted tax revenue. The popular press has been claiming this is a Keynesian miracle – spawning growth and cutting the fiscal deficit. There is some truth to the statement that the ‘Socialist’ government has reversed some of the worst austerity policies introduced by the previous right-wing government, acting as puppets of the Troika. But what has been going on in Portugal highlights the myopia inherent in the restrictive Eurozone fiscal rules, which promote very short-term behaviour on the part of the Member State governments. As Portugal is currently demonstrating, it is prepared (and is motivated by the fiscal rules) to sacrifice sustained prosperity for short-term appeasement of Brussels. Short-term growth can occur within limits at the expense of long-run potential.

How would we assess whether a monetary system was working? There are several dimensions that warrant attention. On any dimension that we might put forward, the Eurozone has been a miserable failure. I have just read the latest – Benchmarking Working Europe 2017 – compiled and published by the European Trade Union Institute and the European Trade Union Confederation (ETUC), which documents these dimensions of failure of the European Union and the Eurozone in particular. It puts the White Paper on the future of Europe released by Jean-Claude Juncker on March 1, 2017, into better perspective. The White Paper is the European Commission’s “contribution to the rome Summit on March 25, 2017” to “mark the 60th anniversary of the EU”. It is a document bereft of any substance and should be disregarded. The ETUI and ETUC Report provides sufficient evidence to conclude that the whole monetary union shebang should be dismantled as quickly as possible.

The tiny nation of Malta (~ 420 thousand population) and the only one of two Eurozone nations that have English as one of its official languages is now hosting the EU Presidency for 2017. This was a function that was established by the Treaty of Lisbon in 2009 and allows a nation to influence the European Union’s agenda. As the rules dictate Malta shares this function with two other nations (Netherlands and Slovakia) to form the so-called Trio Presidency. There will be a lot of talk and papers produced and a lot of flags and posters are appearing in Valletta (Malta’s fortress capital) but don’t expect much to come from it. The other thing about 2017 and the EU is that they are celebrating the 60th anniversary of the signing of the Treaty of Rome later this month (signed on March 25, 1957 and operational from January 1, 1958). The European Commission is clearly keen to give the impression that the Treaty of Rome was the first step in the succession of steps that made Europe what it is today. In one sense that is correct. But in a more important sense that claim is nonsense. The reality is that the subsequent revisions of the Treaty (Maastricht and Lisbon) represented fundamental paradigm or ideological shifts in the way Europe was to be governed. The Treaty of Rome recognised that limited economic cooperation could be beneficial to all participating nations as long as it was attenuated or managed by comprehensive system of state intervention. The subsequent treaties represent a shift from the Member States having the capacity to ensure full employment to a situation where the Member States are biased to enforcing austerity and creating persistent and elevated levels of unemployment and poverty at the behest of the ideological masters in the European Commission, who are neither elected by or accountable to the people of Europe they claim to represent. So … why are they celebrating the 60th anniversary of an approach to economic policy making and nation-building that they have now completely rejected?

The new US President has now scrapped the TPP and is turning his attention to NAFTA. These are developments that those on the Left should applaud. No so the conservative, neo-liberal government in Australia which is claiming it is pushing ahead with the TPP (sure, with Indonesia) and hinting that China might be part of a new TPP arrangement sans the US. That, in itself, is incredible given that the TPP was designed to counter the growing trade strength of China. But the ground is certainly shifting. Even the IMF is embracing China and added the Renminbi to the Special Drawing Rights basket last September (along with the USD, the euro, Yen and pound), which is recognition that the IMF doesn’t think the Chinese have been manipulating the currency – one of the paranoid claims of the new US President. But in Europe, people are getting anxious after the President of the ECB Mario Draghi decided to put pressure on Italy with threats they would owe the Eurosystem (through the Banca d’Italia) some 358.6 billion euros, which are that nation’s TARGET2 liabilities as at November 2016. The real currency manipulator, German who continues to game its Eurozone partners (via an undervalued euro) is also claiming it is owed cash as a result of its increasing TARGET2 assets. The threat from Draghi is hollow and Italy should just ignore it and get on with leaving the Eurozone and restoring its prosperity as an independent currency-issuing state.

I read a short discussion paper this morning – What model for the future of the eurozone? Critical actions – released by France Stratégie, which is formally known as the Commissariat général à la stratégie et à la prospective (CGSP). It is a government body attached to the Prime Minister’s office. It was created in April 2013 Its mission is to provide broad discussion parameters to aid future policy directions for the French government. The discussion paper provides nothing new and seems to avoid the realities of the European cultural and historical milieu that really dominates or constrains (whichever way you want to think about it) the possible routes back to prosperity for the continent. It lists three options for reforming the Eurozone: (a) Return to original principles (Maastricht 2.0) where nations were fiscally separate and there would be no bailouts; (b) Reinforced fiscal integration with “joint liability for sovereign debt” and control of “national parliaments’ fiscal sovereignty’ by some European-level institution (Commission/Parliament); and a (c) a US federal model. They are motivated by the conclusion that the current situation is “ineffective”, which is a euphemism for total dead-in-the-water failure. They do not broach the most obvious and, in the long-run, best solution, which is consistent with the cultural and historical realities – orderly breakup and return to true currency sovereignty. So the discussion paper really offers very little by way of a path out of the maresme that the elites in Europe have created to line their own pockets at the expense of everyone else.

Data released by Eurostat (October 20, 2016) – EU28 current account surplus €13.5 bn – shows that the EU28 ran a significant current account surplus in August 2016 following a surplus of €11.3 billion in July. The August result is up €5.3 billion on August 2015. Net trade in goods and in services is more or less equally balanced. The stunning result is that the German current account surplus in August 2016 was €17.87 billion up from €14.43 billion in August 2015., while the next largest Eurozone Member State surplus was Italy at €3.37 billion. Germany is also running a fiscal surplus of around 1.2 per cent of GDP at present, which means the private domestic sector is saving massive amounts, which, in turn, not only results in subdued demand within Germany (and low growth) but also reduces import spending. In turn, this reduces growth in other nations. The stunning fact is that the European Commission is doing nothing about this massive imbalance despite Germany being in serial contravention of the rules relating to macroeconomic imbalances. The Brussels jackboot is quick to kick Greece but stays well away from sanctioning Germany, even though the German behaviour is much more deleterious to the viability of the common currency.

There was an interesting interview published in the financial market journal Central Banking this week with Otmar Issing, who was the ECBs first chief economist and a former European Central Bank executive board member. He predicted that as a result of the political corruption of the monetary union ideal, “the house of cards will collapse.” He was referring to the claim that the ECB has become captured by politicians and technocrats in the IMF and the European Commission such that it is now violating essential central banking principles, in addition, to Treaty obligations that were designed to safeguard the financial stability of the system. I have some agreement with his overall view that a federal solution to the Eurozone ills is not viable. But I do not agree that the ills of the Eurozone stem from recent political decisions – to pressure the ECB to engage in QE or other interventions. The reality is that the flawed design of the Eurozone, which reflected the ideological hold of neo-liberalism on the integration discussions in the 1980s and beyond, meant that the only effective fiscal capacity in the currency union was held by the ECB. If the ECB had not started buying up government bonds in May 2010, the monetary union would have collapsed about then. The whole problem is that neo-liberalism brought these Member States together into a monetary architecture that was doomed from the start.

So several investment funds based on real estate in the UK have suspended trading to stop people withdrawing their funds. Who would have thought that in a vastly overvalued UK property market that people would start to reassess the value of these investments, especially after working out (gosh!) that the mismatch in maturities in these type of funds was more or less extreme? And so the Leave vote is now being blamed on crashing a market when all that is happening is that the real estate market is starting to correct back to something less ridiculous. And talking about ridiculous. The Italian government is now coming headlong into conflict with the, now ridiculous, European Commission on the impending crash of its zombie banking sector. You might have thought we were still back in 2008 or something. No folks, this is 2016 and the Eurozone problems just keep on going. The Italian banking crisis was always going to happen – it was just a matter of when. Why? Simply because the single currency experiment has failed and the policy making process and the institutional machinery is so detached from reality – as in all cases of Groupthink – that it can no longer respond in an effective way to changing circumstances. The Eurozone is still crippled by its flawed monetary design and in more recent years the migrant issue has come over the top to reinforce this malaise. The Brexit vote outcome reflects the consequences of this dysfunction and demonstrates that a world contrived by the elites to benefit themselves is not the world of reality where things have a habit of turning sour if the rest of us are suppressed.

I have noticed a creeping trend in the European press over the last 18 months or so claiming that Finland’s economic malaise, which continues to deteriorate, is nothing to do with the euro. The latest effort in this campaign of denial suggests that the real problem is the “the Finnish welfare state and society”. My view is as follows and it couldn’t be any clearer – whatever structural problems there are in the Finnish economy (following the decline of Nokia and the impending decline of its paper industry due to changing patterns with respect to newspaper consumption), Finland’s decline into the status of a Eurozone basket case along with Greece is all down to the euro and the ridiculous fiscal rules that prevent its government from countering a sharp decline in both the export revenue and private capital formation. Without the limitations imposed by euro membership, Finland would be in a position to stimulate its own economy just as it did during the bleak years of its recession in the early 1990s. Certainly, it would not be a sufficient condition just to exit the euro zone. The neo-liberal infestation that interprets the fiscal rules in the harshest manner (that is, denying even the minimal flexibility that is possible within the Stability and Growth Pact) an additional layer of the problem. But if Finland was to restore its own currency then at the political level the neo-liberal politicians would not be able to shift blame onto the Eurozone rules when they deliberately pushed up unemployment through unnecessary fiscal cuts. Then it would be more obvious that the political leadership was responsible which would bring the destructive neo-liberal tendencies into relief.