Latest European Union rules provide no serious reform or increased capacity to meet the actual challenges ahead

It’s Wednesday and we have discussion on a few topics today. The first relates to the new agreement between the European Parliament and the European Council that was announced on February 10, 2024, which purports to reform the fiscal rules structure that has crippled the Member States of the EMU since inception. The reality is that the changes are minimal and actually will make matters worse. I keep reading progressives who claim the EU fiscal rules are no longer operative. Well, sorry, they are and the temporary respite during the pandemic is now over and the new agreement makes that very clear. I also express disappointment that high profile progressives continue to misrepresent Modern Monetary Theory (MMT) as they advance their own agenda, which effectively provides support to the sound finance narratives. Then some updated health data which continues to support my perspective on Covid. And then some anti-fascist music. What’s not to like.

Read more

Be careful using first release data – Britain now surges ahead of Europe!

In May 2023, when the British Office of National Statistics (ONS) released the March-quarter national accounts data (first estimate), which showed that real GDP grew by only 0.1 per cent in the first quarter and a rate equal to the December-quarter 2022, the critics were out in force. Brexit this. Brexit that. Graphs were created showing that Britain was recording the worst growth across the G7 nations. Brexit this. Brexit that. The Labour Party was cock-a-hoop as they continued the purge of the progressive elements in the Party. Then the second estimate came out on June 30, 2023 using additional data which the ONS said provides ‘a more precise indication of economic growth than the first estimate’, we learned that GDP “increased by an unrevised 0.1% in Quarter 1”. Brexit this. Brexit that. William Keegan who is like a cracked record stuck in a rut, wrote more UK Guardian articles bemoaning the democratic choice to leave the European Union. The problem is that all this data-centric inference was based on an illusion, which is why one must always be circumspect when dealing with this sort of data. The latest national accounts data released by the ONS on Friday (September 29, 2023) revised the first quarter result – scaling it up by a factor of three – to 0.3 per cent, which is still slow but hardly the disaster the pundits claimed.

Read more

Claiming the European Union is close to full employment defies the meaning of language

Last week (September 13, 2023) in Brussels, the President of the European Union delivered her annual – 2023 State of the Union Address. We all know that these events are spin-oriented and the leader of the 27-nation bloc is hardly going to come out and talk the arrangement down. But this was an election speech – with the next major elections coming in the year ahead. The President lauded all the half-baked and under-funded programs that they have initiated under her ‘leadership’ and when it came to assessing the state of the labour market she made the extraordinary statement that as a result of Commission policies (such as – SURE) “Europe is close to full employment.” Yes, they are spinning the view that the problem is not a lack of jobs but “millions of jobs are looking for people” while admitting that “8 million young people are neither in employment, education or training” – the so-called NEET generation. Language should above all else convey meaning. Trying to claim that Europe is close to full employment violates that basic aspiration. The reality is that Europe is nowhere close.

Read more

The Ireland growth miracle is largely illusory and biasing Eurozone growth data upwards

I have been avoiding keeping up-to-date with the Irish national accounts over the last several years for reasons that I documented in this blog post – Ireland – not as rosy as the official story might suggest (January 2, 2018). Ireland has been held out as the poster nation for the Eurozone boosters because of its seemingly ‘impressive’ growth performance after entry into the common currency and its resilience after the Global Financial Crisis. During the GFC, I wrote a series of blog posts (see below) that delved into reality of the Irish situation and we learned that the so-called ‘Celtic Tiger’ growth miracle was an illusion and was driven by major US corporations evading US tax liabilities by exploiting massive tax breaks supplied to them by the Irish government. Since then the ‘smoke and mirrors’ have become even more obvious as the Irish national accounts recorded massive increases in business investment all due to fudges in the way several large corporations recorded their tax affairs. I decided recently to see where this was at given the European Commission is still claiming that growth. What I found was that the distortions in the Irish data are influencing the outcomes reported for the European Union as a whole and things are definitely not as robust as the official figures demonstrate.

Read more

New feudalism seems to forget about the capitalists

It’s Wednesday and I am now more or less settled in my new office which has the sun coming in from the north-east. I was talking to someone yesterday about various things and the topic of neo-feudalism or new feudalism entered the conversation – as you might expect (-: I am deeply suspicious of adding ‘neo’ or ‘new’ to any conceptual term for reasons I will explain. And if you don’t want to know about that then just skip to the end and listen to some great music, as I have been today while working.

Read more

Post Brexit UK is seeing higher skilled labour entering from non-EU countries to support a range of services (public and other) – success

It’s Wednesday and so before we get to the music segment we have time to discuss a few issues. The first relates to the progress Britain is making in its post-Brexit reality. There is now growing evidence that, despite predictions of economists supporting the Remain case, the newly gained freedom that Britain now enjoys as a result of leaving the EU has allowed it to restrict the entry of lower-skilled and lower-paid migrants (from the EU) and attract a large boost in skilled migration from non-EU nations with net benefits to the domestic economy. Second, it seems the mainstream is now discovering the work of Marxist economists from 5 or more decades ago and concluding that it provides a much better explanation of the inflation process than that offered by Monetarists (excessive money supply growth) or the mainstream New Keynesian theories which emphasise “departures from a natural rate of output or employment” (NAIRU narratives). That’s progress even if it took a while. Once you have absorbed all that there is some great improvisational music to soothe your senses.

Read more

The end of the common currency (euro) cannot come soon enough

In my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – I traced in considerable detail the events and views that led to the creation of the Economic and Monetary Union (EMU, aka the Eurozone) once the Treaty of Maastricht was pushed through as the most advanced form of neoliberalism at that time. The difference between the EMU and other nations who have adopted neoliberal policies is that in the former case the ideology is embedded in the treaties, that is, in the constitutional system, which is almost impossible to change in any progressive way. In the latter case, voters can get rid of the ideology by voting the party that propagates it out of office. It is true that in current period, even the parties in the social democratic tradition have become neoliberal and there is little choice. But the EMU is different and has entrenched the most destructive ideology in its legal structures. We are reminded of this recently (April 26, 2023), when the European Commission released its latest missive – Commission proposes new economic governance rules fit for the future. Once operational, the policies advocated in this new governance structure will ensure that Europeans are once again made to endure persistent and elevated levels of unemployment and continued deterioration in the quality and scope of public infrastructure and welfare provision. The collapse of this ideological nightmare cannot come soon enough.

Read more

US inflation falling fast as Europe prepares to go back into a deliberate austerity-led crises

The transitory view of the current inflation episode is getting more support from the evidence. Yesterday’s US inflation data from the Bureau of Labor Statistics (March 14, 2023) – Consumer Price Index Summary – February 2023 – shows a further significant drop in the inflation rate as some of the key supply-side drivers abate. All the data is pointing to the fact that the US Federal Reserve’s logic is deeply flawed and not fit for purpose. Today, I also discuss the stupidity that is about to begin in Europe again, as the European Commission starts to flex its muscles after it announced to the Member States that it is back to austerity by the end of this year. And finally, some beauty from Europe in the music segment.

Read more

Abandoning the euro would have essentially zero negative income effects for the vast majority of Member States

If you cast your mind back to the peak of the GFC, when people were actually talking about the dissolution of the Economic and Monetary Union (EMU), a.k.a. the Eurozone, or more specifically, a unilateral exit by Greece or Italy, we were told by the ‘experts’ that it would be catastrophic. Over and over, headlines shouted at us how disastrous it would be if the Eurozone failed. Well, guess what, even pro-Euro researchers have come to the conclusion that the effects of collapsing the monetary union would be minimal, to say the least. And when we dig into their analysis a bit deeper, using technical knowledge, the results are even more devastating for the pro-Euro camp. Mostly, using techniques that give pro-Europe narratives the best chance of delivering supportive empirical results, they find mostly impacts that are not statistically different from zero, of an abandonment of the common currency and a return to currency sovereignty for the 20 Member States. I haven’t seen any attention given to this in the mainstream media or from those pro-Euro Tweeters that tweet away with all sorts of nonsense about how good the common currency has been. But then that would be a bridge to far for them I guess.

Read more

EU bonds will not become a ‘safe asset’ – Germany and Co won’t let that happen

It’s Wednesday and I have several items to discuss or provide information about today. Today, I discuss the future of the EU-bonds that were issued as part of two main emergency interventions in 2020 as policy makers feared the worse from the pandemic. The question is whether these assets can ever become ‘safe’ in the same way that Japanese government bonds or US treasury bonds are clearly ‘safe’. The answer is that they cannot and the reason goes to the heart of the problem besetting Europe – the fundamental monetary architecture is flawed in the most elemental way. I also provide some updates for MMTed and a great new book. And, of course, this week, I have to remember Jeff Beck in the music segment.

Read more

The Eurozone fictions continue to propagate

There was a Financial Times article recently (January 8, 2023) – Monetary independence is overrated, and the euro is riding high – from Martin Sandbu which strained credibility and continues the long tradition of pro-Euro economists attempting to defend the indefensible – fixed exchange rate, common currency regimes. He claims that the Euro is a better system in the modern era for dealing with calamity than currency independence. However, as I explain below, none of his arguments provide the case for the superiority of the Eurozone against currency-issuing independence. Currency-issuing government can certainly introduce poor policy – often because the policy makers refuse to acknowledge their own capacity and think they have to act as if the nation doesn’t have its own currency. But the negative consequences that flow from testify to the poor quality of the polity rather than any disadvantages of the currency independence. The Euro Member States are being bailed out by the central bank and if that stopped the system would demonstrate the inherent dysfunction of its monetary architecture and nations would fail.

Read more

IMF reform proposals for the Eurozone are just weak band aids that cannot fix the dysfunctional mess

The Eurozone is currently in a period of ‘temporary’ hiatus – by which I mean that to deal with the obvious system-ending implications of the pandemic (increasing fiscal deficits etc) the European Commission invoked the special clauses to suspend the application of the fiscal rules outlined in the Stability and Growth Pact (SGP) and related Excessive Deficit Mechanism procedures and the European Central Bank introduced an even larger bond-buying program to ensure the resulting deficits would be funded without bond yields rising. Result: fiscal deficits rose well beyond the SGP limit of 3 per cent in 2020 and have remained at elevated levels relative to the rules in 2021. The overall Eurozone deficit is 4.7 per cent of GDP and 11 of the 19 Member States remain in ‘violation’ of the Excessive Deficit Mechansim should that be reinvoked. It is clear that unless the ECB continues funding the deficits across the union (even though it claims otherwise), then the European Commission will tempt disaster if it tries to reassert the Excessive Deficit Mechansim. Already so-called ‘reform’ proposals are emerging and many more will come in the months ahead. The first major effort from the IMF is really just more of the same and fails to deal with the dysfunction at the design level of the monetary union. The proposals so far are just advocating putting band-aids over the mess – and they are weak bandages at best. But how this dilemma is resolved will be interesting for sure.

Read more

Once again the so-called technocracy that is the Eurozone looks like a farce

So last week, the Bank of Japan remained the last bank standing, the rest in the advanced world have largely lost the plot by thinking that raising interest rates significantly will reduce the global inflationary pressures that are being driven by on-going supply disruptions arising from the pandemic, the noncompetitive behaviour of the OPEC oil cartel and the Russian assault on Ukraine. The most recent central bank to buckle is the ECB, which last week raised interest rates by 50 basis point, apparently to fight inflation. But the ECB did it with a twist. On the one hand, the rate hike was very mainstream and based on the same defective reasoning that engulfs mainstream macroeconomics. But on the other hand, they introduced a new version of their government bond-buying programs, which the mainstream would call ‘money printing’ and inflationary. So, contradiction reigns supreme in the Eurozone and that is because of the dysfunctional monetary architecture that the neoliberals put in place in the 1990s. The only way the common currency can survive is if the ECB continues to fund Member State deficits, even if they play the charade that they are doing something different. Hilarious.

Read more

Eurozone anti-fragmentation confusion – its really simple – the ECB has to continue to fund deficits or kaput!

The French National Assembly results from the weekend are a good outcome. Not the best, but good, although the continued presence of the Right is disturbing. At least Macron’s group of Europhiles has lost its absolute majority with the new Left alliance becoming a viable opposition. The polarisation – with a surge from the Right and the strong performance of the real Left rather than the lite Socialist Party version – is indicative of what Europe has become – a fractured, divided, divergent set of nations and regions. If the Left had have seen the value in this unity ticket during the Presidential election things might have been different. But better late than ever. France will now find it hard pushing further neoliberal policies and there will be pressures on the government to defy the fiscal rules and redress some of the shocking deficiencies that the neoliberal period has created. But, those pressures are coming squarely up against the impending crisis facin gthe monetary union. All the economics talk in Europe at the moment is indicative of the plight that monetary union faces after papering over the cracks during the first two-and-a-half years of the pandemic. After years of holding the bond spreads down, with their asset purchasing programs, things are changing as the ECB is pressured to follow suit and hike interest rates and abandon their bond buying. If they do both things, then there will be a crisis quick smart because nations like Italy will face increasing yields on their borrowing which will run out of control. So, the solution – another ad hoc response – an “anti-fragmentation” tool. If it sounds like a joke that keeps on rolling, you would not be wrong. More paper, same cracks.

Read more

French presidential election – some hope for a future progressive, anti-EU Left

Australia will go to a federal election on May 21, 2022 with the current conservative government looking in bad shape and the Opposition Labor Party has been helped a little by interventions from the French president. Emmanuel Macron candidly called the Australian Prime Minister a liar which further dented his already fractured image as the most untruthful politician in Australia. I hope the conservatives are routed but, in saying that, I know it means the Labor Party will take power and continue their embarrassing pretence to be progressive, while preaching the very mainstream economics that has damaged so many of the people that the Labor politicians claim to represent. A bad situation really. We are not yet in a situation where the traditional conservative and labour parties are being challenged by new entrants to the field. The first round of the French presidential election for 2022 were held at the weekend with some very interesting results and definitely showed that the traditional political voices in France are dead – something we could only wish for in this country.

Read more

Euro area inflation is not accelerating out of control

Last week (January 20, 2022), Eurostat released the latest inflation data – Annual inflation up to 5.0% in the euro area – which followed the release from the US Bureau of Labor Statistics data (January 12, 2022) – Consumer Price Index Summary , the latter, which shocked people, given that it recorded an annual inflation rate of 7 per cent before seasonal adjustment. The Euro area inflation rate over the same period was published as 5 per cent. It is obviously hard to see clearly through the data trends given the amount of pandemic noise that is dominating. But I stand by my 2020 assessment (updated several times since) that we are still seeing ephemeral price pressures as a result of the massive disruption the pandemic has caused to production, distribution and transport systems. In a sense, I am surprised the inflationary pressures have not be greater.

Read more

The European conservatives are organising while the progressives fight among themselves

I read an article in the Frankfurter Allgemeine Zeitung (FAZ) yesterday (January 16, 2022) – Ich hoffe auf Deutschland – which made me laugh really. Comedy in absurdity. It also told me that the forces in Europe are firmly against any major progressive change. I considered this issue last week in this blog post – German threats of exit rely on the ignorance of others reinforced by Europhile progressives (January 11, 2022). I know progressives thought that the invocation of the Stability and Growth Pact escape clause in 2020 as the pandemic took hold might have been a sign that things were changing in Europe after years of austerity bias. But as the days pass, more evidence mounts that there is a status quo that is being managed and it won’t be long before we see the familiar claims about excessive deficits and debt. The latest input comes from Austria’s new Finance Minister, Magnus Brunner who was reported in the FAZ article as saying that he rejects a debt union outright and hopes to win over the new German government to ensure they hold the fort. With the new German finance minister also of a similar if not more extreme persuasion about sound finance, I do not think he will have much trouble convincing the German. He also signalled that he wants to use a coalition – the “Staaten der Verantwortung” (States of Responsibility) to maintain discipline in the Eurozone. The short period of fiscal flexibility is coming to an end. Meanwhile, with the French Presidential election approaching, the Left is fighting among itself for peanuts. The old guard is not about to fall yet.

Read more

German threats of exit rely on the ignorance of others reinforced by Europhile progressives

I read a story in the German press – Der Euro auf dem Prüfstand (‘The euro on the test bench’, published January 7, 2022) – which reinforced my view that progressives who think the harsh austerity-bias of the Economic and Monetary Union (EMU) have vanished with the invocation of the ‘general escape clause’ within Article 126 of the Treaty of the Functioning of the European Union when the pandemic arrived are off the mark. And when the same commentators/thinkers welcomed the end of the Merkel era and the dawning of the new German government, their assessment reflected that they are trapped within the TINA to the euro thought process. Well, economists with influence in Germany certainly don’t think that and one of the bosses of the Kiel Instituts für Weltwirtschaft (IfW) (Kiel Institute for the World Economy), which is a German research institute, has called for the topic of German exit from the EMU to be debated. He believes that this will put pressure on the other Member States (particularly the so-called “Achse Paris-Rom” (Paris-Rome axis) to abandon any thought of relaxing the economic and monetary rules and force the ECB to tighten monetary policy again. The iron gauntlet of ‘schwarze Null’ is still firmly gripping the European debate.

Read more

European growth positive but weak

It’s Wednesday, so just a few items that have passed me by this week. Eurostat published the latest national accounts data yesterday (September 7, 2021) that reveals that key Eurozone states are still lagging behind where they were before the pandemic. In some cases (Italy and Spain), they hadn’t even got back to pre-GFC levels of activity before the pandemic stuck. So a double hit to these nations in the space of a decade or so. That damage will be immense and demonstrates once again the dysfunctional nature of the currency union. Then I consider the latest nonsense from the Business Council of Australia – which is just a special pleading organisation for the top-end-of-town. They think it is time to go back to the deficits are bad narrative (except when their members are receiving corporate welfare that is). And to calm down after that we have some jazz, of course.

Read more

European Commission processes still biased towards fiscal austerity

I keep reading that the European Commission has abandoned the Stability and Growth Pact (SGP) and that the euro is no longer a problem. I beg to differ. On June 6, 2021, the European Commission released a – Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union – which updated their latest views on the state of fiscal balances in the EU. The Report confirms the Commission’s intention to return to the Excessive Deficit Mechanism process in 2023. The problem is that the whole assessment process is biased towards fiscal austerity. I show why in this blog post.

Read more
Back To Top