Tag Archives: Social Europe Journal

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‘The IMF, Spain And The Return Of The Confidence Fairy’

‘The IMF, Spain And The Return Of The Confidence Fairy’

Pay attention in particular to the graph at the end of the article. It shows Evolution of Labour Unit Costs since 1999 (in %); and which country has consistently undercut the price stability line (i.e. inflation of under, but close to 2% a year)? Right, Germany. Massive wage compression is sold as competitiveness, while in fact Germany isn’t playing by the ECB’s own rulebook.

Olli Rehn is not liked in Spain – neither are the ECB, IMF and European Commission

This is a very bitter-sounding writing by a distinguished Spanish professor. It’s main lesson is that the problems in the Eurozone are not in the labour market; with the exception of Greece perhaps, labour market rigidities have not caused unemployment. To quote:

In other words, it is assumed that unemployment is lower in the US because it is easier to fire workers in the US than in the EU (including Spain). If that was the case, then how can it be explained that US unemployment was higher than the average of countries that later on became the EU-15 for the majority of years in the post-World War II period, even as the US labor market was already more ‘flexible’ than those of the countries that would eventually form the EU-15? In fact, unemployment in the EU only started to overtake the US unemployment rate when preparations to establish the Euro were underway, as the governing institutions of the Euro set controlling inflation as a top priority rather than job creation.

The main lesson, in particular for Olli Rehn, should be: making labour markets more ‘flexible’ (euphemism for making hiring and firing easier) is not the solution for getting the economy up to speed. In a situation of depressed demand (domestic, European and global), is it smart to make it easier to fire workers, so that they have less income to spend? Of course not. Furthermore, in the context of the euro, increasing unemployment means greater reliance on social safety nets, which shows up in increasing government debt, which currently triggers uncontrollable craving by politicians to cut the government debt.

You know, there is a reason why social safety nets are called ‘automatic stabilizers’ – they make recessions less severe and redistribute wealth when there is a boom. The current generation aims to destroy all that and go back to pre-1930s economic ‘wisdom’.

In the context of the Eurocrisis it is very hard to understand the stance of ‘Northern’ Social-Democrats, i.e. in Finland, Netherlands and Germany in particular. But it is no surprise that many people also in those countries are flocking towards populist parties on the left and right.  Let there be a lesson for those parties before it is too late.

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Can Spain Achieve What Ireland And Latvia Did?

Can Spain Achieve What Ireland And Latvia Did?

‘Spain would do well to stay clear from the type of reform measures the Commission and the IMF are trying to sell to economies in distress.’

Some, especially in Finland, might find that there is a lot of critical posts regarding Olli Rehn (not as a person, as a representative of a certain set of policies). But please remember: all the talk of ‘recovery’ is extremely premature and in any case how can you call it a recovery when unemployment is so high (and rising in many places). Think of the Netherlands. Think of how things are going in Finland – not the aggregate numbers but the real-life stories of people losing their jobs.

 

In addition, as Simon Wren-Lewis writes, left- and right-wing extremism is surging thanks to the current politics. In the Netherlands the extreme right/populist Freedom Party as well as the extreme left Socialist Parties are surging in the polls. Also in Finland, especially now the crisis starts to bite, the political success of the True Finn party is virtually guaranteed in the next elections. This I have thought about earlier, and written on the blog here. The recent gallup by the Finnish daily shows that the opposition parties Center Party and True Finns are clearly on the rise, the former would be the biggest and the latter is as big as the National Coalition Party, which leads the current government. The Social Democratic Party is quite a lot smaller in this opinion poll that half a year ago (18,2% to 16,3%).

‘The Euroarea: Premature, Diminished, Divergent’

You can find the article by Domenico Nuti here. Maybe there is nothing new as such, but it is good to see an overview of the main issues of the eurocrisis once in a while, i.e. starting from the design flaws of the EMU and policy mistakes, the role of the ECB and where we go next.

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“In Which Jörg Asmussen Finally Cures Me Of A Delusion”

“In Which Jörg Asmussen Finally Cures Me Of A Delusion”

To paraphrase a well-known exclamation: who needs enemies when you have central bank leaders like this?