There shouldn’t be anymore disagreement over the utter failure of European economic policies – debt levels are not exactly going down, unemployment (especially for young people) is way to high, growth is non-existent (0,5% for the Netherlands is considered a success!) and worst of all, deflation may be around the corner, making all of the problems above much worse. And that is without taking into consideration the rise of right-wing nationalism such as in France, the Netherlands, Finland and perhaps most vicious of all, Hungary. Also Spain has decidedy undemocratic tendencies regarding the right to express opinion.
In short, Europe is falling to pieces as we stand. And that is not a place where I want my children to grow up. Current law doesn’t allow I guess this but in my opinion many of the current politicians (especially also in Brussels) should be tried for gross mismanagement. Finland is a great country but in a way it is Greece circa 2010: digging its hole of economic misery deeper and deeper by trying to keep the government budget under control, in the face of a sinking economy and deficient aggregate demand. I don’t like that one bit, because it is precisely the wrong policy. But you know, rules are rules and you should stick to the rules, and especially when it is really difficult you should throw some sisu in to show that you are toughing it out.
Fortunately, there are some that have thought about the Eurocrisis agreat deal and propose solutions that don’t need Treaty changes nor should be politically unacceptable. The two models I like most are by Jamie Galbraith, Yanis Varoufakis and Stuart Holland on the hand and by Jörg Bibow on the other hand. Both have their merits and it is possible to merge them in a ‘super-proposal’, I guess. The Modest Proposal is my final choice though, because it seems to be much more active about investment and also is very thought through in terms of practical implications.
By the way, the Finnish version of The Global Minotaur will be released in roughly two weeks and Yanis Varoufakis will be in Finland for this reason, also being a keynote speaker in the Power, Culture and Economy –conference in Tampere later this month.
This time regarding the exchange rate of the euro and whether or not this is a problem. In short he states that the euro should appreciate even more, because that would lead to a global rebalancing which is needed in view of the Eurozone’s external surplus.
Bibow again shows the sources of the eurocrisis (or its political “resulution”) lies in German policies. In short, with German real wages repressed for a long time, European wages in decline and business costs flat or even in decline, it is not a surprise that we might be seeing deflation. An excerpt:
While externally wage repression is normally an act of pure folly under flexible exchange rates, much damage is done internally. For wage repression undermines private spending, both consumption and investment. And notoriously depressing domestic demand, in turn, has budgetary consequences which, under the so-called Stability and Growth Pact, trigger austerity; further amplifying economic weakness. The continued pursuit of this strategy in an economy that is at the brink of deflation turns suicidal when that economy is also burdened with excessive debt legacies. As the IMF recently warned, debt deflation processes set in even before prices are actually falling. Trying to work off debt overhangs under deflationary conditions is self-defeating; unless currency weakness propels exports sufficiently to offset the self-inflicted wreckage. Seen in this light, euro policymakers’ nervousness about euro strength seems understandable – without however making their grossly negligent conduct any more excusable.
I suspect texts like these are very hard to read for anybody who is convinced of the correctness of the German policy prescription. Also in Finland labour market partners and government compare the Finnish situation to the German one and aim for similar unit labour costs – without seeming to understand that a) achieving this will take many years and b) it might not even succeed if German real wages still fall. That is leaving the social aspects out and all that is logically inconsistent with this kind of policy (Finland cannot be a low labour cost country whereas Germany aims to be one, with its large Central European Hinterland, Germany’s workshops).