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.
These words resonate when it comes to assessing the state of the Eurozone:
The economic and social situation speaks for itself: over 23 million people are still unemployed today in the European Union, with more than half without a job for a year or more. In the euro area alone, more than 17.5 million people are without a job. Our recovery is hampered by global uncertainties. Government debt in the EU has reached more than 88% of GDP on average, and stands at almost 93% in the euro area …
recovery is too slow, too fragile and too dependent on our external partners.
More fundamentally, the crisis has left us with very wide differences across the euro area and the EU as a whole. It has damaged our growth potential. It has added to the long-term trend of rising inequalities. All this has fuelled doubts about social progress, the value of change and the merits of belonging together.
And they came from the mouth of no less than Jean-Claude Juncker during his – State of the Union 2015: – on September 9, 2015, his first as the newly-installed President of the European Commission.
Arguably, things have become worse since that speech.
The ETUI/ETUC Report begins by noting that the “Faltering recovery” is “under threat again” with output and employment growth predicted to slow further and that the European Commission has made some noises about a “slightly expansionary scal policy across the euro area countries, albeit with no means to ensure its implementation”.
The flawed design of European integration continues to resonate … and will keep resonating because all the so-called reforms, improvements, responses, whatever one might call them that the European Commission has introduced since the onset of the crisis, none address the basic flaw – a lack of a federal fiscal capacity.
I have been re-reading the Memoirs of Jean Monnet, the famous French planner who was one of the driving forces of early European integration in the immediate Post World War 2 period.
The English-translation was published in 1978.
At one point, he is recalling developments between 1972 and 1975 and the struggle over the status of the new European institutions (such as the European Council).
… while we had always believed that these would lead to others and gradually involve a. ‘very broad integration of human activities, I knew that this process would stop where the frontiers of political power began’ There, something new would have to be invented. The European Economic Commission, the Council, the Assembly, and the Court were admittedly a pre-federal model; but they were not the institutions, of a political federation of Europe. That would have to be established by a specific creative act which would require a further delegation of sovereignty … That was the point of the Provisional European Government …
And then he discusses the Danish initiative in November 1973 to “to present a united front to the Americans, so as to contribute to peace in the Middle East”:
In response to Pompidou’s appeal, the Danish Government invited its European partners to Copenhagen. Practical decisions were prepared, confirming the solidarity of the Nine on energy and regional policy, and account was taken of my own advice. Then, suddenly, when all seemed well, everything was thrown into turmoil. Future historians will explore the reasons and see more clearly where the responsibilities lay. What happened was that, surprised by the oil producers’ embargo and literally jostled by their diplomacy, the Heads of State and Government lost control of their meeting, which degenerated into a traditional international conference, swarming with experts. The illusory quest for particular advantages revealed more dramatically than ever how weak our European States were if each was left to its own devices. What remained of the sentiments expressed a few weeks earlier by the Community’s supreme leaders? A vague resolution to meet more frequently. But the failure was too spectacular, and certain changes of attitude were too startling, for what had occured to be regarded as more than a passing accident. In such cases, there is nothing to be done but wait until necessity restores order.
Which really sums it up – in 2017. The chronic lack of will to create a truly integrated Europe. The big talk (“sentiments expressed a few weeks earlier”) juxtaposed against the reality (“a vague resolution to meet more frequently”).
“Swarming with experts” – the technocrats that dominate the agenda with their fake economic models.
The indecision (not “a passing accident”).
Kick it down the road (“wait until necessity restores order”).
Europe 1973. Europe 2017.
The ETUC Report confirms this.
It says that:
The key to sustained recovery should be fiscal policy, both to stimulate internal demand and to create the basis for a more serious investment plan … The need is also there: in the failure of current policies to reduce cleavages across the EU, in the shortfall in research and development spending, in the weakness of the European infrastructure, and in the lack of a vigorous approach to energy conversion. However, the limited exibility allowed in existing euro area rules means that little is likely to change. In a year’s time, the European Commission is likely to report another year of slow growth, possibly once again somewhat below its already modest forecasts.
And so it goes.
The ETUC REport confirms that:
1. “ten countries had still not reached their pre-crisis peak GDP level” by the end of 2016.
2. “The crisis of 2008 hit hardest those countries that had become dependent on credit to finance construction booms, notably Ireland, Spain and the Baltic states” – one-size fits all interest rates, German suppression of domestic demand (exporting capital), and lack of financial oversight.
3. “The downturn after 2010 was most marked in countries that had been pushed into imposing the severest austerity measures after facing sovereign debt problems, mostly following crises in private banking” – pro-cyclical fiscal policy – the anathema of responsible fiscal management imposed.
4. “Ireland’s quite exceptional recorded GDP growth was mostly the result of a revision of 2015 figures to include pro ts of multinational companies declared in Ireland, where the tax regime was very favourable” – in other words, illusory.
5. “In 2016, the euro area saw a further expansion of its current account surplus with the rest of the world … indicates that consumed and invested resources in the euro area as a whole are lower than those produced; or, put more simply, that domestic demand is too low compared to supply” – deliberate suppression of domestic demand by policy makers in Germany and austerity imposed by Troika.
6. “the value of domestic demand … in the euro area was in 2016 still below its 2008 level” – in 10 Eurozone nations and in total. Deliberate act of sabotage by European Commission rules.
7. Internal devaluation focused on cutting public sector pay etc has “no direct bearing” on international competitiveness. This has killed import growth and most shifts in external balances have come from imports being reduced due to contraction of national income.
8. “What is also remarkable is the contrast between the average annual growth rate in private final consumption expenditure in constant 2010 prices during the 2001- 2007 and the 2008-2016 periods … this collapsed in all but a handful of Member States …” Austerity suppressing national income growth. Deliberate policy choice by neo-liberals in charge.
9. Juncker’s investment plan (“an investment of 2.4% of EU GDP over three years”) has been a failure – “An investment plan that does not increase investment”.
But it is the labour market and social developments that the Report emphasises the failure.
The Report notes that “Joblessness remains high”, “High and persistent long-term unemployment”, a “Return to temporary employment” all of which are:
… testimony to the ineffectiveness of the policies pursued in recent years which aimed to make permanent employment more ‘attrac- tive’ to employers through deregulatory measures.
There has also been “More jobs but not more work”, which means that the casualisation and part-time trends have accelerated – and employment growth has been concentrated at the low-wage end of the spectrum.
A characteristic of neo-liberal economies.
Taken together it means that the working poor (“In-work risk of poverty”) remains high and is now spreading into those with “higher educational attainments”
The Report says that:
… the risk of in-work poverty for those with the highest qualifications was in 2015 35.3% higher than in 2010, a relatively greater change than in all other qualification level groups as well as all other categories of employed people.
So the investment in education is now being squandered by a lack of quality jobs.
And finally, what about wage developments?
The Report finds that “Real wages” are “the long shadow of the crisis and its management”.
Stagnating or even decreasing real wages became the dominant feature in the crisis period. A total of seven EU countries show negative annual growth rates. The fall in real wages is particularly pronounced in Greece (-3.12), followed by Croatia (-1.06), Hungary (-0.89) and Portugal (-0.74). In another 14 EU countries the annual average growth rate of real wages is below 1% and only seven countries show a fairly strong real wage development of 1% or more on average per year during the crisis period.
What are the implications of this real wage suppression?
The prolonged weakness in real wage development throughout the EU systematically curbed internal demand and fostered a disinflationary development of prices … Against this background it is not surprising that the economic recovery in the EU lags far behind that in the US. Some economists even expect a long- lasting period of stagnation and weak economic growth in Europe …
Private consumption expenditure is the largest source of aggregate spending in any economy. Spending equals income which is then further spending.
Suppression of real wages growth undermines overall economic growth.
A stark characteristic of the neo-liberal period has been to suppress real wages growth and redistribute national income (given on-going productivity growth) to profits.
To overcome the lack of demand that results, financial engineers, empowered by the increased financial market deregulation (another characteristic of neo-liberalism), pushed increasing volumes of credit onto workers, which for a time made up for the stalled wages.
But with the crisis, this option has less credibility and effectiveness, as households struggle with massive levels of debt.
The following graph (using OECD data) shows the Household debt ratio (percent of net disposable income) for several OECD nations at 2015 (latest data) and 2000 (black triangles).
The trend is self-explanatory.
With the demand for credit in the Eurozone still weak – see this blog Inflation rises in Euro Area – but don’t claim it is the ECB’s doing – the on-going real wages suppression is highly damaging.
And as Larry Elliot writes in yesterday’s UK Guardian article (March 26, 2017) – Populism is the result of global economic failure:
The 10 years since the financial crisis have shown that the system of economic governance which has held sway for the past four decades is broken. Some call this approach neoliberalism. Perhaps a better description would be unpopulism.
Unpopulism meant tilting the balance of power in the workplace in favour of management and treating people like wage slaves. Unpopulism was rigged to ensure that the fruits of growth went to the few not to the many. Unpopulism decreed that those responsible for the global financial crisis got away with it while those who were innocent bore the brunt of austerity.
In an electoral rally over the weekend, Marine Le Pen predicted that (Source):
The European Union will die because the people do not want it anymore … arrogant and hegemonic empires are destined to perish.
The quicker the corporatist, neo-liberal behometh called the European Union dies the better.
As I noted in my presentation in Maastricht a fortnight ago (see Eurozone Dystopia – video presentation), there is a need, on scale considerations, for a European-level framework to deal with issues such as climate change, migration, rule of law.
But there is absolutely no need for an economic union with a common currency under the terms that are possible given the historical, cultural and political realities.
There is too much of those “vague resolutions to meet more frequently” and too little of substantive action under the current set up for anything functional to be sustained.
That is enough for today!
(c) Copyright 2017 William Mitchell. All Rights Reserved.