Bill Mitchell doesn’t mince words. In a very long and detailed post, he disects how the SGP and Excessive Deficit Procedures (EDP) have been used against Germany in the early 2000s and against France and Italy at the moment. It is worth your time to read it, because right now:
10/18 [Eurozone] nations [are] caught up in the ridiculous bureaucratic procedure, which only kills growth and prosperity.
And from his conclusion:
The history of the EMU to date has taught us that if Germany is unable to meet rules, then the rules will be altered. Otherwise, the rules will be used as a blunt weapon to devastate the employment base and living standards of weaker nations without the political clout of Germany.
The mindless Eurozone rules (German rules) have failed. It is time to move on and get over it.
It is time to abandon the project and release these nations and their people from the growth-sapping, poverty-inducing straitjacket.
In this context I think this paragraph is important:
This is why it is nonsensical to target a particular public deficit ratio (with respect to GDP) because it is so sensitive to private economic activity. The government cannot actually guarantee it will hit a particular outcome given that private spending essentially dictates the outcome.
The government is far better off targetting employment levels to ensure there are enough jobs available and to also work to ensure first-class public infrastructure is in place.
Whatever the fiscal outcome that emerges from that sort of quest will be appropriate, given the goal of government is to advance welfare rather than achieve some abstract financial ratio, which few people fully understand anyway.
But any of this will probably fall on deaf ears again.
‘Paul Krugman: – ‘Scandal in France’
Really all there is to say about economic policy in Europe. Tragic, misguided, stupide even, if Social Democrats start buying into the Say’s Law fallacy.
‘France by the Numbers’ and a reality check on Finland and the Netherlands
A good read, and the graph on performance in GDP-change is very useful. What do you mean, Finland has turned a corner? Yes there are some positive signs regarding some big firms, but there are ever so many co-determination negotiations to lay-off people or make them redundant.
‘Again, things aren’t good. But you do have to wonder why the French elite is so easily intimidated into making a hard right turn while the elites of much worse cases like Finland and the Netherlands remain steadfast in their notion that the worse things get, the more committed they have to be to inflicting further pain.’
“France’s ‘AA’ Hollande pays price for kowtowing to EMU deflation madness – Telegraph Blogs” http://feedly.com/k/HFnWUq
Another fine and important post.
Simon Wren-Lewis: ‘France and the Commission ‘
In the words of Paul Krugman:
“But the larger point here, surely, is that Rehn has let the mask slip. It’s not about fiscal responsibility; it never was. It was always about using hyperbole about the dangers of debt to dismantle the welfare state. How dare the French take the alleged worries about the deficit literally, while declining to remake their society along neoliberal lines?”
Rules are for…breaking? Stability and Growth Pact and beyond
This link by Delusional Economics again shows how hard-headed German politics is. And not only politics, but also the Bundesbank. To recap: the Bundesbank is very much against the ECB’s OMT program, and challenges this before the German constitutional court. Outcome is unsure but it is possible that there will be such restrictions on the use of OMT that it will become useless. Furthermore, Berlin and the Bundesbank still believe in austerity. This is misguided, because other European countries cannot replicate the enormous trade surplus that Germany has. Not inside Europe, not with the rest of the world – the demand isn’t there and it is impossible in terms of accounting identities for Germany AND other countries to have such big surpluses – the trade deficits of the remaining countries would have to be so much bigger as well.
So, regarding the comment about agreed rules and to apply them: as the chart shows, Germany has broken those same rules many times over, in particular to come out of the slump in the early 2000s. The only countries that have some credibility here are Finland, Estonia and Luxemburg. Yup, really small countries – in terms of inhabitants and economic clout (although the Luxemburgian banking sector is a story on its own).
Next, this bit:
France needs more time to get its budget deficit under control. That much was made clear last Friday when the European Commission announced it was granting Paris until 2015 to bring its budget deficit below the maximum 3 percent of gross domestic product allowed by European Union rules ensuring the stability of the euro.
Later on it is stated that France will be in recession this year. Given the existence of a welfare state and rising unemployment, how on earth does Germany think France will get its deficit below 3% of GDP in two years? With a deepening downturn going on, this is just postponing the reckoning: France will not be able to do this, and France is really too big and too important to put it under ‘Troika stewardship.’
Delusional Economics says that this German politics is related to the German elections, but I have no confidence (ha ha) that after the elections German policymakers will soften up. They are (from my point of view) in a very dangerous case of group-think. It is even possible, given the rhetoric, that if the SPD wins, the policies will even turn harsher.
Meanwhile, millions of Europeans suffer, because of policy mistakes. What about solidarity, eh?
http://feedproxy.google.com/~r/social-europe/wmyH/~3/qFvfZ0TtNfk/ Andrew Watt is the director of the German Institut für Makroökonomie und Konjunkturforschung.