Wednesday, June 24, 2015

Are sanctions destroying the German economy?

There are times when the German economy seems to defy the laws of gravity.  Under normal circumstance, being surrounded by dozens of countries with major economic difficulties would suggest that it would be difficult to sell your products.  A consumer who wants your goods and actually has money is a rare commodity—especially if your products are expensive.  This is especially true if your customers are living in shrinking economies.

Then there are the problems caused by neoliberalism itself.  This economic philosophy was invented to make the rich richer at the expense of everyone else—most especially their prosperous Producing Classes.  Not surprisingly, this is also extremely effective in drying up the pool of customers with money.  This problem can be managed for awhile by making credit more easily available but eventually this doesn't work so well as consumers max out their credit lines.

And then, for whatever reason, the Germans chose a foreign policy that cut them off from their Russian customers.  Large books will be written for why these normally sane people went so bugfuck insane, but at the core is their belief that "we're #1 (in Europe) and neoliberal economics got us to that position, so more of the same should make us even richer and more powerful."

From the outside, this looks like a recipe for economic disaster.  ONLY the abilities of the German Producing Classes has prevented the above factors from plunging her into a serious economic catastrophe.  Now we see that Germany is really beginning to feel the pain that was as predictable as dawn when they started to drink the neoliberal kool-aide.  And while it may be possible to defy the economic laws of gravity for a while, you will come crashing to earth if you allow the big economic decisions to be made by doddering fools like Wolfgang Schäuble.  It only needed a trigger and sanctions against Russia are beginning to look like that trigger as they expose some of the major fairy tales about the German economy.

German Banker: Obama Is Destroying Europe

by Eric Zuesse | June 10, 2015

Interviewed on June 6th by German Economic News, the chief economist at Bremer Landesbank, Folker Hellmeyer, says that because of Obama’s sanctions against Russia, German exports declined year-over-year by 18% in 2014, and by 34% in the first two months of 2015 (no later figures), but he asserts that "The damage is much more comprehensive than these statistics show,” because those are only the “primary losses,” and there are in addition “secondary effects,” which get even worse over time.

For example: "European countries with strong business in Russia, including Finland and Austria, are economically hit very hard. These countries consequently place fewer orders from Germany. Moreover, considering that European corporations will circumvent the sanctions, to create production facilities at the highest efficiency level in Russia, we lose this potential capital stock, which is the basis of our prosperity. Russia wins the capital stock,” at the EU’s expense, even though the sanctions are targeted against Russia.

But the nub is this: “For the future, Germany and the EU place their economic reliability into question with Russia. The relationship of trust is broken by Germany and the EU. In order to build such confidence, it takes several years. Between signature and delivery are up to five years. ... Siemens is now thrown out from a major project for this reason [i.e., because the requisite predictability has been lost]. Alstom has likewise lost the contract for the railway line from Moscow to Beijing. Consequently, the potential for damage is much more massive than the current figures show, not only for Germany, but for the entire EU.”

Then, he says: "More [projects] still in planning include the axis from Peking to Moscow as part of the Shanghai Corporation and the BRIC countries, the largest growth project in modern history, the construction of the infrastructure of Eurasia, from Moscow to Vladivostok, to Southern China and India. How far the EU and Germany's sanctions-policy regarding Russia figures in these developing-countries’ mega-projects will depend upon whether we’ll be seen as hostile in other emerging countries than Russia. [NOTE from Eric Zuesse: Obama speaking 28 May 2014 to graduating West Point cadets: ‘Russia’s aggression toward former Soviet states unnerves capitals in Europe, while China’s economic rise and military reach worries its neighbors. From Brazil to India, rising middle classes compete with us, and governments seek a greater say in global forums.’ His attitude toward developing countries is clear — they are enemies, to be dealt with via the military, not economic partners to advance with us in economic cooperation.] But, obviously, there is a lack that some participants in European politics [and inside the White House!] have in their abilities to think abstractly on our behalf.”

Asked who will be paying the price for this, he says: "The measurable damage is loss of growth, in lost wages, losses in contributions to the social system and in tax revenue. This is true for the past 12 months, and it is valid for the years ahead. The people in Germany and the EU will pay the price through lost prosperity and stability. The unmeasurable damage lies in an elevated geopolitical risk situation for the people in the EU.”

Asked about the situation in Ukraine, Hellmeyer says: "It is indeed irritating. People who are focused not only on Western ‘quality media' are amazed at those media hiding the aggression of Kiev and the discriminatory laws implemented by the Government in Kiev, which constitute a serious challenge to the claim that Western values and democracy are being supported by the West. I believe, to Mr Steinmeier’s credit, that he is in fact talking plainly about these matters behind closed doors. The question is whether the behavior of the Atlantic alliance supports Mr. Steinmeier. I refer in this regard especially to Victoria Nuland. The fact is that by the coup in the Ukraine, an oligarchy friendly towards Moscow was replaced by an oligarchy now oriented toward the United States. It's geopolitics, which benefits third forces, but definitely not Germany, not the EU, not Russia, and not Ukraine.” So, he sees U.S. as having gained at the expense of every other country, but especially at Europe’s expense.

Asked about the future, Folker Hellmeyer says: "For me, the conflict has already been decided. The axis Moscow-Beijing-BRIC wins. The dominance of the West is through. In 1990 those countries accounted for only about 25% of world economic output. Today, they represent 56% of world economic output, and 85% of world population. They control about 70% of the world's foreign exchange reserves. They grow annually by an average of 4% - 5%. Since the United States were not prepared to share power internationally (e.g., by changing the voting-apportionments in the IMF and World Bank), the future rests with those countries themselves, to build in the emerging markets sector on their own financial system. There lies their future. The EU is currently being drawn into the conflict, which the United States caused because she did not share power and want to share. The longer we pursue this [mono-polar, hegemonic, Imperial, supremacist, internationally dictatorial, aggressive] policy in the EU, the higher the price [to Europe will be].”

He goes on to say: "The fact is that the emerging countries emancipate themselves from US control. This is evident in the creation of competitive institutions of the World Bank (AIIB) and the IMF (New Development Bank) by the axis of the emerging countries. This displeases the still prevailing hegemon. The current international hot spots of Afghanistan, Iraq, Syria, Libya, Egypt, to the Ukraine, are an expression of this, in the background, as a clearly identifiable power-confrontation [between the U.S. and every other country]. If we were there intending to establish democracy and freedom, let's look at the success in achieving those goals. [His implication: it’s failure.]"

German Economic News asks: "The contempt with which the US government deals with the Europeans is remarkable, such as the NSA tapping the Chancellor’s phone, and Nuland’s famous 'Fuck the EU’ statement. Have European politicians no self-respect, or are they just too cowardly?"

Hellmeyer responds: “The person who is a true democrat takes seriously his duties as a politician for the public’s well-being, and does not allow his nation's self-determination to be so contemptuously trampled underfoot, such as has followed from that remark. The person who is not a true democrat, has with respect to the above values and canon, severe deficits.”

CLOSE from Zuesse: Why is there not, in Europe, a huge movement to abandon NATO, and to kick out the U.S. military? Whom is the U.S. ‘defending’ Europeans from, after the Warsaw Pact ended in 1991? Why did not Gorbachev demand that NATO disband when the Warsaw Pact did — simultaneous (instead of one-sided) disbanding of the Cold War, so that there would not become the foundation for international fascism to arise to conquer Russia (first, to surround it by an expanding NATO — and ultimately via TPP & TTIP), in the aftermath? Why is there not considerable public debate about these crucial historical, cultural, and economic, matters? Why is there such deceit, which requires these massive questions to be ignored so long by ‘historians’? How is it even possible for the world to move constructively forward, in this environment, of severe censorship, in the media, in academia, and throughout ‘the free world’? Why is there no outrage that the Saudi and other Arabic royals fund islamic jihad (so long as it’s not in their own countries) but America instead demonizes Russia’s leaders, who consistently oppose jihadists and jihadism? Why are America’s rulers allied with the top financiers of jihad? Why is that being kept so secret? Why are these injustices tolerated by the public? Who will change this, and how? When will that desperately needed change even start? Will it start soon enough? Maybe WW III won’t occur, but the damages are already horrible, and they’re getting worse. This can go on until the end; and, if it does, that end will make horrible look like heaven, by comparison. It would be worse than anything ever known — and it could happen in and to our generation. more

Greece is a sideshow. The eurozone has failed, and Germans are its victims too

Aditya Chakrabortty  23 June 2015

The single currency has driven down wages across the continent and hit workers in its leading economy the hardest

Nearly every discussion of the Greek fiasco is based on a morality play. Call it Naughty Greece versus Noble Europe. Those troublesome Greeks never belonged in the euro, runs this story. Once inside, they got themselves into a big fat mess – and now it’s up to Europe to sort it all out.

Those are the basics all Wise Folk agree on. Then those on the right go on to say feckless Greece must either accept Europe’s deal or get out of the single currency. Or if more liberal, they hem and haw, cough and splutter, before calling for Europe to show a little more charity to its southern basketcase. Whatever their solution, the Wise Folk agree on the problem: it’s not Brussels that’s at fault, it’s Athens. Oh, those turbulent Greeks! That’s the attitude you smell when the IMF’s Christine Lagarde decries the Syriza government for not being “adult” enough. That’s what licenses the German press to portray Greece’s finance minister, Yanis Varoufakis, as needing “psychiatric help”.

There’s just one problem with this story: like most morality tales, it shatters upon contact with hard reality. Athens is merely the worst outbreak of a much bigger disease within the euro project. Because the single currency isn’t working for ordinary Europeans, from the Ruhr valley to Rome.

On saying this, I don’t close my eyes to the endemic corruption and tax-dodging in Greece (nor indeed, does the outsiders’ movement Syriza, which came to power campaigning against just these vices). Nor am I about to don Farage-ist chalkstripes. My charge is much simpler: the euro project is not only failing to deliver on the promises of its originators, it’s doing the exact opposite – by eroding the living standards of ordinary Europeans. And as we’ll see, that’s true even for those living in the continent’s number one economy, Germany.

First, let’s remind ourselves of the noble pledges made for the euro project. Let’s play the grainy footage of Germany’s Helmut Schmidt and France’s Giscard d’Estaing, as they lay the foundations for Europe’s grand unifier. Most of all, let’s remind ourselves of what the true believers felt. Take this from Oskar Lafontaine, Germany’s minister of finance, on the very eve of the launch of the euro. He talked of “the vision of a united Europe, to be reached through the gradual convergence of living standards, the deepening of democracy, and the flowering of a truly European culture”.

This isn’t about creating a deeper democracy, but deeper markets – and the two are increasingly incompatible

We could quote a thousand other such stanzas of euro-poetry, but that single line from Lafontaine shows how far the single-currency project has fallen. Instead of raising living standards across Europe, monetary union is pushing them downwards. Rather than deepening democracy, it is undermining it. As for “a truly European culture”, when German journalists accuse Greek ministers of “psychosis”, that mythic agora of nations is a long way off.

Of all these three charges, the first is most important – because it explains how the entire union is being undermined. To see what’s happened to the living standards of ordinary Europeans, turn to some extraordinary research published this year by Heiner Flassbeck, former chief economist at the United Nations Conference on Trade and Development, and Costas Lapavitsas, an economics professor at Soas University of London turned Syriza MP.

In Against the Troika, the German and the Greek publish one chart that explodes the idea that the euro has raised living standards. What they look at is unit labour costs – how much you need to pay staff to make one unit of output: a widget, say, or a bit of software. And they map labour costs across the eurozone from 1999 to 2013. What they find is that German workers have barely seen wages rise for the 14-year stretch. In the short life of the euro, working Germans have fared worse than the French, Austrians, Italians and many across southern Europe.

Yes, we’re talking about the same Germany: the mightiest economy on the continent, the one even David Cameron regards with envy. Yet the people working there and making the country more prosperous have seen barely any reward for their efforts. And this is the model for a continent.

Perhaps you have an image of Deutschland as being a nation of highly skilled, highly rewarded workers in gleaming factories. That workforce and its unions still exist – but it’s shrinking fast. What’s replacing it, according to Germany’s leading expert on inequality, Gerhard Bosch, are crap jobs. The low-wage workforce has shot up and is now almost at US levels, he reckons.

Don’t blame this on the euro, but on the slow decline of German unions, and the trend of business towards outsourcing to cheaper eastern Europe. What the single currency has done is make Germany’s low-wage problems the ruin of an entire continent.

Workers in France, Italy, Spain and the rest of the eurozone are now being undercut by the epic wage freeze going on in the giant country in the middle. Flassbeck and Lapavitsas describe this as Germany’s “beggar thy neighbour” policy – “but only after beggaring its own people”.

In the last century, the other countries in the eurozone could have become more competitive by devaluing their national currencies – just as the UK has done since the banking meltdown. But now they’re all part of the same club, the only post-crash solution has been to pay workers less.

That is expressly what the European commission, the European Central Bank and the IMF are telling Greece: make workers redundant, pay those still in a job much less, and slash pensions for the elderly. But it’s not just in Greece. Nearly every meeting of the Wise Folk in Brussels and Strasbourg comes up with the same communique for “reform” of the labour market and social-security entitlements across the continent: a not-so-coded call for attacking ordinary people’s living standards. This is what the noble European project is turning into: a grim march to the bottom. This isn’t about creating a deeper democracy, but deeper markets – and the two are increasingly incompatible. Germany’s Angela Merkel has shown no compunction about meddling in the democratic affairs of other European countries – tacitly warning Greeks against voting for Syriza for instance, or forcing the Spanish socialist prime minister, José Luis Rodríguez Zapatero, to rip up the spending commitments that had won him an election.

The diplomatic beatings administered to Syriza since it came to power this year can only be seen as Europe trying to set an example to any Spanish voters who might be tempted to support its sister movement Podemos. Go too far left, runs the message, and you’ll get the same treatment.

Whatever the founding ideals of the eurozone, they don’t match up to the grim reality in 2015. This is Thatcher’s revolution, or Reagan’s – but now on a continental scale. And as then, it is accompanied by the idea that There Is No Alternative either to running an economy, or even to which kind of government voters get to choose.

The fact that this entire show is being brought in by agreeable-looking Wise Folk often claiming to be social democratic doesn’t render the project any nicer or gentler. It just lends the entire thing a nasty tang of hypocrisy. more

1 comment:

  1. This article is very interesting .its must be helpful
    and informative for us. Thanks for sharing your nice post.
    web design UK