Monday, June 3, 2013

Euro economic crises rolls on

I have been spending a lot of time lately wondering why the USA left is so freaking hopeless when it comes to economic and environmental matters.  It is not a topic that makes me happy.  To have a President from the Democratic Party who will not defend Social Security is really quite devastating.  Now it can be argued that the Democrats were never all THAT left, but compared to the unabashedly bourgeois Republicans, they were sort of left.  And even though they are but a handful, there are even some Democrats who are reminders that theirs was once the party of FDR, Francis Perkins, and Ken Galbraith (etc.)

But compared to the collapse of the European Left, ours has held up amazingly well.  So I wonder what killed the Euro left.  After all, they were are lot "lefter" than we would ever be, were theoretically much better grounded, and more importantly, held power in important governments for significant periods of time.  But, watching someone like Gerhard Schroeder sell out German workers was enough to make folks forget that Hitler once considered the Social Democrats so dangerous, he had many of them murdered and many more sent to concentration camps.  Seeing an ├╝berwienie like Hollande in action, it's hard to remember that the Socialists once preached armed struggle.

Even worse, it seems that former leftists become the most enthusiastic neoliberals.  The intellectual journey from Marx and Gramsci to neoliberalism seems especially short.  I have theories for why this is so, but they are not so important as the fact that it IS so.  Then there is the problem that Marxism was such a notorious failure so flogging that horse back to life looks especially impossible.  Once you have lost your economic playbook, the only thing a Marxist has to offer is an annoying authoritarianism. The obvious solution would be to turn to other progressive strategies such as was invented by the left Populists in North America.  After all, the USA Pops were confronting corrupt banksters so the application is ideal.  But the Euro establishment has turned populism into a swear word and Euro scholarship doesn't even begin to understand the historical underpinnings of left Populism.

Lessons From a Comparison

The US and the Euro Crisis


The eurozone recession is now the longest on record for the single currency area, according to official statistics released last week, as the economy shrank again in the first quarter of this year. A comparison with the U.S. economy may shed some light on how such a profound economic failure can occur in high-income, highly-educated countries in the 21st century.

While the U.S. economy is still weak and vulnerable, the record 12.1 percent unemployment in the eurozone is still a lot worse than our 7.5 percent here. The most victimized countries like Spain and Greece have unemployment of about 27 percent.

The contrast between the U.S. and Europe is all the more striking because Europe has much stronger labor unions, social democratic parties, and a more developed welfare state. Yet the eurozone has implemented policies far to the right of the U.S. government, causing needless suffering for millions more people. How does this happen? The answers have little to do with a “debt crisis” but everything to do with macroeconomic policy, ideology, and – perhaps most importantly – democracy. As such these questions are relevant not only to the populations of both of these economic superpowers, but to most of the world.

Let’s start with democracy: most of the eurozone countries have little to no control over the most important policies that the government can use to increase employment and income, includingmonetary, exchange rate, and increasingly, fiscal policy. They have ceded this control to the eurozone authorities – most importantly the European Central Bank (ECB). The decision makers for the more victimized countries – including Spain, Greece, Ireland, Portugal, and Italy – are now “the Troika”: the ECB, European Commission, and the International Monetary Fund (IMF). They have their own agenda, and their priority is not restoring employment or even bringing about a speedy economic recovery.

Before returning to that agenda, let’s contrast the economic decision makers of the eurozone with those of the United States. Our central bank, the Federal Reserve, is officially independent of the government. Like the ECB, it has often acted against the interests of the majority, favoring powerful financial interests – most recently in its enabling of the $8 trillion housing bubble that caused the Great Recession. But the Fed is still accountable in some ways. Fed Chair Ben Bernanke has to report regularly to Congress, and the Fed has some fear that Congress might reduce its autonomy if it were to ignore the public interest too flagrantly. (They were not pleased about legislation approved by the U.S. House last year that required, for the first time, an audit of the Fed’s books; it remains blocked in the Senate.)

The ECB, by contrast, has no such constraints. In fact, for most of the last three years, the Troika has actually used the recurrent financial crises in the eurozone to pursue a political agenda: rolling back, as much as possible in a European context, the welfare state. The ECB could have avoided most and possibly all of these crises by simply stabilizing the interest rates on Spanish and Italian government bonds. But as was evident in numerous press reports, the ECB and its allies feared that to end the threat of a full-blown financial crisis would “remove the pressure” on governments to make the reforms that they wanted: cutting pensions and unemployment insurance, weakening unions’ collective bargaining rights (as in Spain), and shrinking government generally.

Finally in the fall of last year, ECB President Mario Draghi made some statements indicating that the ECB would stabilize Spanish and Italian bonds. He got tired of near-death experiences, apparently; and after more than a dozen European governments (including Sarkozy’s in France) had fallen, the ECB and its allies were running up against some political limits. This change in policy, which put an end to the most severe, recurring financial crises in Europe, can be partly attributed to the very slow impact of a severely limited form of democratic input. That included of course massive street protests and electoral events such as the surge of the Greek left party Syriza.

But this “democracy” is far too restricted and slow moving to save the millions of unemployed whose lives are being wasted; and most importantly, it only ended the acute crises and not the continuing recession caused by the austerity measures enforced by the Troika. This has an important lesson for any country: don’t give away your economic sovereignty, on the most important macroeconomic policies that most of your nation’s livelihood depends upon – unless it is transferred to a set of institutions that you can really trust. Which of course is the opposite of what was created with the eurozone, with its built-in bias towards austerity in recession, and a central bank that was religiously committed to not caring about employment.

Again, the contrast with the U.S. is worth noting. Even if Mitt Romney had been elected, he would not have dared to implement the kind of austerity that would push the U.S. back into recession. He would want to get re-elected. That is not to say that eurozone officials have a monopoly on macroeconomic stupidity: the sequester in the U.S. is currently slowing the U.S. economy and causing unnecessary harm. But it was not as easy to get this result here; it is not as severe; and it will be easier to reverse than in Europe.

What then is the hope for Europe? Another political lesson, which most union leaders know, is that it’s difficult to win any concessions without bargaining power. So far, almost none of the political leaders in the most victimized countries, including Spain and Greece, are willing to simply refuse the Troika’s conditions, for fear that it would lead to their exit from the euro. So the Troika doesn’t see much reason to let up on the austerity. In that sense the most promising recent development has been the meteoric rise of the populist Beppe Grillo and his Five Star Movement in Italy. He has been willing to talk about a referendum on leaving the euro, and his movement got the largest number of parliamentary seats of any single political party in the February Italian elections.

The case needs to be made, and explained to the public – as economist Paul Krugman recently did for Cyprus – that years of mass unemployment are too high a price to pay for keeping the euro. Politicians do not need to propose leaving the euro, as that remains taboo. But a refusal to accept recessionary conditions would shift the burden to the European authorities as to whether they want to kick any country out of the currency union. Most likely they would not. But without a willingness to simply refuse the Troika’s recessionary conditions, it’s going to be a long, slow slog to reverse the continued infliction of needless suffering in what used to be one of the most democratic regions of the world. more

‘Keeping euro afloat at all costs behind catastrophic EU unemployment’

May 29, 2013 14:37

The EU needs to reverse its macroeconomic policies and stop supporting the euro if it doesn’t want record unemployment to result in civil disorder and political problems, Dr. Stephen Davies from the Institute of Economic Affairs told RT.

Skyrocketing youth unemployment is becoming the greatest concern for European nations. EU leaders are sounding the alarm over an entire generation who they fear will never find jobs.

At a Paris conference, Germany, Italy and France have urged for action to avert a continent-wide catastrophe, with over 7.5 million young people across Europe currently out of work.

Even Germany, which has the strongest economy in Europe, is suffering from joblessness as unemployment in the country increased four times above expert expectations this May.

Education director at the Institute of Economic Affairs, Dr. Stephen Davies, believes that the set measures to cope with record unemployment in the EU won’t require a lot of funding, but only the desire to reform from the European politicians.

RT: Nearly one in four youngsters in the EU is unemployed. Why are European leaders only addressing this now?

Stephen Davies: That’s a very good question. You quoted the overall average, but in Greece it’s a catastrophic 65 per cent. It’s 50 per cent in Spain. And it’s actually a minor miracle that this hasn’t led to a more serious social and political unrest that it has already. It’s quite surprising that it’s taken [the EU leaders] to do it. I think it’s because they thought that the problem would sort itself out, but it’s become obvious that it won’t.

RT: With unemployment hitting record levels across the bloc, are EU authorities actually able to control the situation?

SD: Well, there are some things they can do immediately. The really big cause for the very high rates of unemployment in general and amongst young people, in particular, is the catastrophic effect of the euro and of the attempts being made – the desperate attempts that are being made – to keep it going. This has led to really severe deflation in the peripheral economies of Europe and this has affected the least able members of the workforce, which means typically the unskilled and the young more severely. So they could change that policy immediately and that would have, at least, some effect.

RT: Youth unemployment is more than double than that of adults, why is it the young that’s suffering the most?

SD: As I said what really needs to be done is to reverse the major macroeconomic policies being followed, which is essentially to bring about a reduction of the price level in the peripheral countries of Europe – to bring their price levels into line with those of Germany. Now, if you don’t have your own currency, you can’t do that by devaluation. Have to do it by an internal deflation, which means, essentially, an induced slump. And in such situations it’s the least skilled part of the work force, which disproportionally means the young - because the young, they haven’t got any work experience and therefore haven’t got the required skills - who are going to suffer most.

So reversing this macroeconomic policy is the biggest thing they could do. They could also undertake supply-side reform, particularly in the UK case, to for example reform education at high-school level to ensure that young people enter the jobs market with the kind of skills that employers want, which will make them more productive.

RT: Tackling youth unemployment would require billions of euro. Does the debt-stricken bloc have enough resources for that? Is it even a priority for them?

SD: It’s a priority – it certainly should be because of the pretty serious political consequences. I mean that one of the things that history tells us is that [having] lots of unemployed young men is a very, very dangerous situation. That’s a kind of thing that historically can lead to really serious trouble – not just in terms of, saying for example, rising crime, but also serious civil disorder of political problems of one kind or another. However, I would challenge your assumption there. This doesn’t necessarily involve spending large amounts of money.

Essentially, it involves the states of Europe improving the quality of their education system, which doesn’t necessarily involve more money. It simply means in many cases the government getting out of the way. And also changing labor market regulations in Europe, which are making it very difficult and very expensive to employ young people. Supply-side reforms of that kind won’t cost a penny, but they would bring about significantly improved chances for young people. more

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