Alemania eta EB, berriz

Bill Mitchell-en Der schwarzen Null continues to haunt Europe


(i) Alemania ez da aldatu, ez aldatuko1

(ii) Wolfgang Schäuble2

(iii Egonkortasun mekanismo europarra3

(iv) Dokumentuaren ezaugarriak eta Wolfgang Schäuble: kontrola eta diziplina4

(v) Olaf Scholz5

(vi) Emmanuel Macron eta François Hollande6

(vii) Brexit, EB eta Alemania7

(vii) Ondorio batzuk8

(ix) Frantziako erantzuna9


(a) So it is on to the European Council summit in Brussels at the end of June for more talk. The Germans will wax lyrical about the importance of Europe to them and how Germany is a European citizen bar none.

(b) But they will not concede ground on the things that matter.

(c) And as the French economy minister said – “without reform the euro area won’t survive”.

(d) And that doesn’t mean making a few changes around the edge.

(e) Germany has to give up control and allow a full fiscal union to develop. That is the scale of the reforms that are required.

(f) It won’t agree to do that.

(g) Nor, for that matter will France.

(h) That has been clear for decades and is why Europe is in the state (mess) it is in.

(i) The clock is ticking!


Ezkerra eta Brexit

Ahantz Europako erreforma

Ingelesez: “Last Tuesday (May 15, 2018), the new German Finance Minister Olaf Scholz stood up in the German Bundestag and delivered his first fiscal policy presentation. Not only was “der schwarzen Null” (Black Zero) sustained but in his address, the new German Finance Minister made it clear that Germany would not entertain any expansion of the EU fiscal capacity (thus rejecting Emmanuel Macron’s proposals) and wanted to delay other ‘reforms’ that Germany had previously suggested they would support (beefing up the Single Resolution Fund and the creation of the European Monetary Union). For those Europhile progressives who have been hanging their hat on the hope that the takeover of the German Finance Ministry by the SPD would be the deal breaker that the Scholz’s presentation was nothing short of a disaster. He reiterated Germany would not be shifting in any major way and that Member States just had to buckle down and follow Germany’s fiscal example – surpluses as far as the eye can see. None of this was a surprise to me. It has been clear for some time that Scholz is just a continuation of Schäuble. Indeed some pointed statements from Bundestag politicians next day in their responses suggested just that.

I wrote about why the elevation of Olaf Scholz will be a disaster for European reform in this blog post – Forget European reform – the Germans have anyway (April 23, 2018).

His Bundestag speech (May 15, 2018) just confirmed that assessment.”

Ingelesez: “On May 16, 2018, when the Bundestag President, Wolfgang Schäuble handed the floor to the spokesperson for Die Linke, Gesine Lötzsch to respond to the German fiscal statement that Finance Minister Olaf Scholz had delivered the day before, she opened by saying that Olaf Scholtz’s fiscal statement ran contrary to the “title of the coalition agreement” – “Ein neuer Aufbruch für Europa – Eine neue Dynamik für Deutschland – Ein neuer Zusammenhalt für unser Land” (“A new departure for Europe – A new dynamic for Germany – A new coheson for our country”.

She said that (Bundestag Protokoll, Wednesday, May 16, 2018, page 2898):

none of this is true in this budget. This is not only a disgrace for Olaf Scholz, but above all is fatal for our citizens. They continue to promote the black zero. I wonder why the SPD really wanted to take over the Ministry of Finance if it only wanted to continue the policy of Wolfgang Schäuble.

The black zero is the famous “schwarzen Null” or balanced fiscal state which Schäuble obsessed about.

In a similar vein, Leader of the Alliance ’90/The Greens, Katrin Göring-Eckardt asked Andrea Nahles (Leader of the Social Democratic Party (SPD) in the new German Parliament) (Bundestag Protokoll, Wednesday, May 16, 2018, page 2995):

Erst einmal habe ich mich gefragt: Warum haben Sie eigentlich 13 Stunden, glaube ich, um das Finanzressort verhandelt, damit am Schluss Wolfgang Schäuble Olaf Scholz heißt? Sonst ändert sich eigentlich nichts.

Which also asks why did the SPD bother trying to get hold of the Finance job when all that has happened is that Wolfgang Schäuble has morphed into Olaf Scholtz.

The day before, Olaf Scholz stood to the applause of the CDU/CSU and SPD members after former Finance Minister, Wolfgang Schäuble, now President of the Bundestag, invited Scholz to present the “Haushaltsgesetz 2018” (Federal Budget Act, 2018).

What followed was an almost final ‘nail in the coffin’ for any plans that the Europhile progressives might entertain to achieve meaningful reforms of the Eurozone.

But first some background.

Ingelesez: “The European Stability Mechanism

After an ad hoc approach to Member State insolvency in the early years of the GFC under the guise of the two programs – European Financial Stability Facility (EFSF) – and the – European Financial Stabilisation Mechanism (EFSM), the European Commission established the European Stability Mechanism (ESM), which was established as an intergovernmental agreement on September 27, 2012.

I emphasised its status as an Treaty Establishing the European Stability Mechanism – because it means the status of the ESM is not currently integrated into European Union law.

The ESM is an intergovernmental institution based in Luxembourg with the EMU Finance Ministers becoming the Board of Governors.

The ESMs role was to provide:

a permanent solution for a problem that arose early in the sovereign debt crisis: the lack of a backstop for euro area countries no longer able to tap the markets.

That is, it was established as a means of helping Member States unable to fund themselves.

It was an explicit recognition that the EMU nations use a foreign currency and can easily find themselves unable to raise sufficient amounts of that currency in bond markets to cover their fiscal deficits.

The ESM has “its own capital of €80 billion” provided by the Eurozone Member States, which cannot be loaned out. Its purpose it to provide financial markets with the confidence that the ESM is widely supported within the Eurozone.

In addition, it raises funds on financial markets which it then loans out under strict (neoliberal) conditionality to Member States in trouble.

Of the six tools available to it the ESM has used just two – loans to Ireland, Portugal, Greece, and Cyprus and some indirect bank recapitalisation in Spain.

The ESM thus currently provides a bailout mechanism, albeit one that enforces the austerity bias. Its purpose is to “keep the euro together” rather than provide any progressive policy space.

On December 6, 2017, the European Commission released its – Further Steps towards completing Europe’s Economic and Monetary Union – (the ‘Roadmap’) which offered two ‘concrete’ proposals:

1. “A proposal to establish a European Monetary Fund”.

2. “A proposal to integrate the Treaty on Stability, Coordination and Governance into the EU legal framework”.

I say ‘concrete’ because these were the only two proposals that have any sense of an action plan attached to them.

This document was really just a follow up on the – Five Presidents’ Report: Completing Europe’s Economic and Monetary Union (June 22, 2015).

That meant that the European Commission intended that these two developments would constitute its major ‘reform’ agenda for the EMU.

Which at the time indicated that very little meaningful reform was going to be countenanced.

The agenda set out was really about tidying up the developments noted above that were introduced on a sort-of piecemeal basis during the crisis and consolidating them under European Commission control and Treaty law.

It doesn’t mean that will be administered as the term “law” is taken to mean. As we know, the European Commission and related institutions such as the European Central Bank, regularly and systematically break the Treaty laws for political gain.

But the proposal was about further centralising control in the technocracy and taking away discretion from the Member States.

In other words, it constitutes the anathema of democratic reform and will increase the democratic ‘deficit’, that has become apparent with Europe over the last decades.

In fact, the ‘Roadmap’ proposed only one substantial change – the proposal to establish the European Monetary Fund.

That proposal is clearly about further centralising control of European matters within the European Commission.

That is the intent of converting an ‘intergovernmental agreement’ into EU law.

Ingelesez: “The document set out time schedule to operationalise the proposal:

1. Euro Summit (December 15, 2017) – while this meeting was dominated by Brexit considerations, the Summit did discuss “the future of the economic and monetary union (EMU) and banking union”.

The President of the European Council, Donald Tusk released a – Letter – ahead of the Summit, which “outlined a number of ideas on which there is a broad convergence” among the Council members.

These were listed as:

  • putting into operation a common backstop for the Single Resolution Fund, possibly in the form of a credit line from the European Stability Mechanism (ESM);

  • further developing the ESM, possibly to become a so-called European Monetary Fund

  • further developing the Ecofin Council Roadmap of June 2016 on completing the banking union, including the gradual introduction of a European Deposit Insurance Scheme

Note the ‘slippage’ in terminology – the proposal to create a European Monetary Fund, by the time the Summit arrived (one year after the ‘Road Map’ was released) was now being expressed as a “possibility”.

2. European Council (June 28-29, 2018).

3. European Council (March 21-22, 2019).

4. Sibiu Meeting (May 9, 2019) – Under the revolving Presidency of the Council of the EU, Romania will host this meeting which is expected to finalise the introduction of the European Monetary Fund.

Notwithstanding the uncertainty, the plan has some clear aspirations:

1. Integrate the ESM into the European Union Treaty – to give the European Commission more control. No reforms here.

2. A desire to kill the Troika – that is, keep the IMF out of any future bailouts in Europe.

3. Create a funding source for the – Single Resolution Fund – to buttress the “orderly resolution of failing banks with minimal costs to taxpayers and to the real economy” – nothing much new in that.

I considered the proposal in more detail in this blog post – The latest scam from the European Commission – the ‘roadmap’ – Part 2 (December 20, 2017).

The European Monetary Fund proposal clearly already reflected Germany’s aversion to any intra-Eurozone transfers. It states that its operations would be “fiscally neutral”, which means there would be no permanent intra-Member State transfers, which are common in functioning federations (such as Australia, Canada etc).

This had Wolfgang Schäuble written all over it as I outlined in this blog post (October 16, 2017) – Wolfgang Schäuble is gone but his disastrous legacy will continue.

That blog post analysed Schäuble’s parting 3-page offering as German Finance Minister – Non-paper for paving the way towards a Stability Union – which argued that “there is little willingness” among Member States to move towards a true federation.

The creation of the European Monetary Fund (EMF), which would just extend the existing European Stability Mechanism, “to provide temporary financial support under strict reform conditionality”, was as far as he was prepared to go.

The operational significance was that under this vision, the EMF would entrench the practice of pro-cyclical fiscal policy (cutting public net spending when non-government spending is declining), which is the anathema of sound fiscal practice.

Wolfgang Schäuble’s non-paper told us exactly why the Eurozone will never become a functioning federation.

Further, Schäuble outlined the German requirement that the ESM would become a monitoring institutions over Member State policies and be allowed to discipline nations that were seen to be in violation of the Stability and Growth Pact.

In other words, technocrats working within the ESM would be empowered to delve into Member State finances and impose conditionality where it thought the State was likely to (or was) violating the fiscal rules (Fiscal Compact).”

5 Ingelesez: “Enter Olaf Scholz’s first fiscal statement – May 15, 2018

Scholz told the Bundestag that (translating in paraphrase form from the German):

1. “The debate about the correct management of government debt and financial markets has dominated European policy over recent years. Taxpayers should never again have to bail out the mistakes of banks through state budgets.”

2. “Europe is the most important national concern for Germany. A strong Europe is of primary interest to Germany.”

3. “As the most populous country with a strongly performing, export-oriented economy in the middle of the continent, we are dependent on a successful European Union. Everything that happens in Europe is important to us, and everything we do in Germany or what we do not do has an impact on our European partners. With this responsibility, we have to be smart and reasonable.”

4. “But the challenges for Europe are getting bigger … wars nearby, millions of people displaced … terrorism … the rise of nationalism … climate change … the list of challenges is long.”

5. “The problem is not that Europe is too dominant, rather it is that the EU seems to be too weak … the big politicial issue is about the sovereignty of Europe, as the French President Macron correctly notes.”

6. “Macron is correct in saying that confidence in Europe is not gained through back room collusion but by making it clear what we are doing.”

Ingelesez: “So all these statements are of the motherhood variety. The nuance is that the way Germany appear to be handling France under Macron is a little different to the way they short-changed François Hollande directly after he was elected on a ‘reform agenda’.

During his election campaign, Hollande had criticised Germany’s obsession with austerity, but when he made his trip to Germany, he was attacked for not proposing a major neoliberal reform agenda in France.

As a result of the delicate structure of the current GroKo in Germany, they have to treat their disdain over Macron’s European ambitions a little less directly.

Ingelesez: “After making all the usual ‘Germany loves Europe’ type messages, Scholz went on articulate what he thought should happen at the European level.

7. “There are very concrete steps to be taken in the area of ​​Economic and Monetary Union and the regulation of banks. The one thing we will do now is to expand the European Stability Mechanism. We (as the government) have stated that we want to develop it further towards a European Monetary Fund. This is important for the future stability of the euro area. Perhaps the ESM may also be the anchorage for the last hedge behind the single European bank resolution mechanism, to be introduced by 2024 at the latest.”

8. “This mechanism avoids taxpayers having to bailout a bank in trouble”.

9. “This should be done in two steps – first, shape the new ESM, and then, embody this new ESM into EU law”. (the AfD members were recorded as laughing at this stage).

10 “the decision of Great Britain to leave the European Union is unfortunate. We do not yet know what withdrawal means for us in the EU. However, it is clear that if the exit is sealed and completed, we will lose a net contributor to the EU budget. We have stated in the coalition agreement that Germany is ready to spend more on the EU budget after Brexit”.

11. How much more? “I have the impression that we can also make a difference with 1 percent of the economic output of the world’s largest trading bloc.”

Even with the paraphrased German translation, it is pretty easy to pick up the further uncertainty that Scholz was intending to introduce into the upcoming European Council meeting on June 28-29, 2018 in Brussels and beyond.

Remember that Wolfgang Schäuble had already indicated Germany would accept the incorporation of the ESM within EU law under the strict conditions noted above.

Let me emphasise Scholz’ intent, starting in reverse order of the issues he discussed above.

First, how much more? Well clearly Scholz recognises that while Britain will no longer be contributing billions to the EU fiscal capacity, he agreed that Germany would be “ready to spend more”.

But don’t be seduced by that promise. The 1 per cent of GDP should be the focus.

On January 8, 2018, the European Commission issued a discussion paper – A new, modern Multiannual Financial Framework for a European Union that delivers efficiently on its priorities post-2020 – which aimed to condition the upcoming EU ‘budget’ considerations in the context of Brexit.

The paper said that this “is a time for Leaders to commit financially to the kind of Union they want” and that the Commission considered the next seven-year financial agreement “will be a litmus test for the European Union”.

It outlined a host of challenges facing Europe and concluded that if “the Union decides to do less, a smaller budget will suffice” but:

Europeans expect a strong Union able to face the challenges of the future and a budget that can deliver for them. Leaders must play their part in meeting these expectations.

Well, Scholz’s speech in the Bundestag last week clearly indicated that Germany was only going to support the “less” option,

Do the sums!

The nominal GDP for the EU (28) was 15,326,468 million euro.

1 per cent of that GDP would represent 153,264.68 million euro.

The EU buget for 2017 allocated:

The EU budget for 2017 sets the total level of commitments at €157.86 billion and of payments at € 134.49 billion” [1 bilioi amerikar = mila milioi europar].

Ingelesez: “Conclusion: Germany is proposing a smaller EU ‘budget’ going forward, which makes all his concilitory statements about Emmanuel Macron look pretty false, given the latter clearly wants to expand the EU allocation.

So Germany does not intend to support any changes that might create a federal fiscal capacity for Europe.

Second, the ‘Roadmap’ saw the European Monetary Fund as providing “the common backstop to the Single Resolution Fund as part of the Banking Union”.

The – Single Resolution Mechanism – was introduced on August 19, 2014 and provides a formal process through which failing banks can be either restructured or closed without requiring massive bailouts from the fiscal resources of specific Member States.

The Single Resolution Fund was the fiscal support to that process – in other words, it provides a fiscal indemnity to Member States facing bank failures.

Its operations began on January 1, 2016 and its fund was to be built up, over 8 years, to be in excess of one per cent of the deposits of all banks in the EU (noting that Britain and Sweden opted out).

Germany was a reluctant participant in the process and rejected the EU’s further plan to incorporate a EU-wide bank deposit insurance scheme, which the European Commission had considered to be the “third pillar” of the European banking union.

One might say, the most crucial pillar.

Germany considered that if such an insurance scheme was introduced it could use its funds to guarantee deposits of citizens across Europe. Germany already has its own deposit insurance scheme and resented having to provide funds to allow other Member State governments, who had not taken a decision to introduce their own scheme, to benefit.

Scholz’s speech indicates that he wanting to play for time in relation to the Single Resolution Fund and its incorporation into EU law.

As he said, Germany does not want the matter resolved until 2024, which by then, will mean Germany is in the next political cycle and no responsibility would be taken by the current government for decisions that might be made by a new German government.

Third and related, Scholz now wants to separate the ESM proposal – the move to create the European Monetary Fund and incorporate it into EU law into two steps (“zwei Schritten”), whereas the European Commission wanted the whole package to be done and dusted by May 2019.

According to Scholz, the first debate would concern the conditions under which the European Monetary Fund would be structured and operated.

The second debate would then concern whether the European Monetary Fund would transcend its current intergovernmental agreement status and become EU law, which would take it out of Germany’s direct control – given it can veto intergovernmental agreements.

There is no way those debates can be finalised by May 2019.

Ingelesez: “French response rather swift

The French response was articulated

On May 10, 2018, a few days before Olaf Scholz stood up in the Bundestag and effectively ruled out any serious reform in the Eurozone, French President Emmanuel Macron told an audience in Aachen (Germany) while he was receiving the Charlemagne Prize for European Unity, that (Source):

Germany can no longer remain attached to maintaining budget and trade surpluses, as they are always achieved at someone else’s expense.

Well they can and they will.

After Scholz’s devastating speech to the Bundestag, the French Minister of Economic Affairs Bruno Le Maire responded by saying that “The eurozone cannot withstand economic divergences among its member states … It is now or never”.

Well Olaf Scholz thinks ‘now’ is 2014!

Same old!

As an aside, the ‘Charlemagne Prize’ is very discriminating. Its past recipients include Martin Schulz, Herman Van Rompuy, Wolfgang Schäuble, Jean-Claude Trichet, Donald Tusk, Angela Merkel, and to cap it all off – The euro was awarded the Prize in 2002.

Given it is awarded for promoting European Unity, you would have to think that the famous quote by Groucho Marx – “Please accept my resignation. I don’t care to belong to any club that will have me as a member”.”

Iruzkinak (4)

  • joseba

    Jeremy Corbyn’s Labour vs. the Single Market
    By Costas Lapavitsas

    If the next Labour government is to be truly transformative, it has to free itself from the constraints of the single market.

    “Workers in Britain remain broadly in favour of Leave, but need information, arguments and, above all, political leadership from the Left, which used to be their voice. Unfortunately, the state of discourse on the Left shows that many have failed to come to terms with the underlying realities of the referendum decision. It is time to stop clinging to some imagined status quo ante. The Left should see this moment as a historical opportunity to transform Britain’s economy, free from the constraints of the Single Market.”

  • joseba

    Alemania, Europar Batasuna eta langabezia
    Bill Mitchell-en European-wide unemployment insurance proposals – more bunk!

    The Europhiles have been tweeting their heads off in the last week or so thinking that the corner has been turned – by which they mean that Germany is about to get all cuddly with France and agree to fundamental shifts in thinking which will make the dysfunctional Economic and Monetary Union (EMU) finally workable, without the need for the ECB to break Treaty law by propping up the private bond markets. The most recent incarnation of the ‘saviour’ is a few words that the new German Finance Minister, Olaf ‘Wolfgang Schäuble’” Scholz said during an interview with Der Spiegel (June 8, 2018) – ‘Germany Has a Special Responsibility’ – about his support for a new unemployment insurance scheme for the Eurozone. It seems even the smallest things excite those who remain in denial about the long-term viability of the common currency. The proposal that Scholz was advancing has been out in the public debate for some years and is nothing like an effective solution to the terminal design flaws in the EMU. It is just an application of the same thinking that led to the creation of that flawed architecture in the first place and reinforces the conclusion that the main players in Eurozone policy setting have no intention of creating an effective federated monetary system. Just more of the same. Tomorrow, the tweets will be extolling the virtues of some other erroneous plan that some Europhile has come up with to save the system. And so it goes.
    In his interview with Der Spiegel, Scholz claimed that Germany should hold Europe as its “most important national interest”. He claimed that “Germany should push forward projects to continue strengthening solidarity in Europe”.
    Der Spiegel then asked the obvious question:
    SPIEGEL: That sounds like additional cash flow from north to south.
    Scholz: No, that’s too simplistic. In social policy, the principle of self-responsibility applies first and foremost. Every eurozone member state should have functioning unemployment protection, a social safety net and appropriate minimum wages.
    So, inching away from a ‘federal’ concept.
    Then, when asked to be more specific, Scholz replied:
    I’m in favor of supplementing national systems for unemployment insurance with a reinsurance for the overall eurozone. A country in the midst of an economic crisis that is resulting in significant job losses and placing a heavy burden on its social-security system could borrow from this joint reinsurance fund. Once the recession is over, the country would pay back the funds it borrowed. At the same time, all countries should make efforts that their safety nets are as prepared for crisis as possible.
    Which then prompted this exchange:
    SPIEGEL: And Germany bears the risk.
    Scholz: No, Germany profits. The German Federal Employment Agency’s reserves would remain untouched, and no debts will be communitized.
    And, Der Spiegel asked, isn’t this just “a further step into a ‘liability union’”, which would be politically difficult to gain support for in Germany.
    Scholz failed to answer that question directly, instead claiming that the Eurozone unemployment insurance scheme would just be like the “reduced-hours compensation program” introduced by the German government in 2008 which saved “many jobs”.
    While not particularly important to this discussion, the German stimulus applied in 2008 to subsidise wages and allow workers to retain jobs with less hours of work as activity fell was not similar to the various configurations of proposed European-wide unemployment insurance schemes.
    Scholz also went on during the interview to say he supported the introduction of a “European financial transaction tax” and repeated his call for the “transformation of the European Stability Mechanism into a monetary fund based on the IMF model”.
    I dealt with the ‘IMF-style’ proposals in these blog posts (among others):
    1. Forget European reform – the Germans have anyway (April 23, 2018).
    2. Die schwarze Null continues to haunt Europe (May 21, 2018).
    Enderlein told Le Monde in 2014 that “Dans le monde post-wesphalien actuel, L’Etat nation est un anachronisme.”
    Which is the central claim by neoliberals and deluded progressives that we critiqued in out 2017 book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017).
    Just the assertion that we are in a post-Westphalien world is now accepted uncritically by many progressives along the TINA lines.
    Sort of, ‘oh well, the nation state is dead, we have to have a post-national world’ – as if that is a valid description of reality.
    As we argued in the 2017 book, the state is very much alive and all major policy decisions are still made via the legislative capacities of the nation states.
    There is no post-Westphalian world.
    That is just a clever construct that the neoliberals have advanced to justify the capture of the state’s legislative and regulative capacities to further there own ends rather than to advance the general welfare of the people.
    Progressives were duped into believing the idea that the nation state is powerless in the face of globalisation.
    The proposal for a European-wide unemployment insurance scheme is similar to the “short-term lending facility” (…) and is used by the Europhiles as a synonym for ‘reform’ by which they mean progress.
    My assessment is that these proposals are all regressions to the mean – they just perpetuate the folly.
    The proposal for a European-wide unemployment insurance scheme is symptomatic of the Groupthink among European economists that led to the problem in the first place.
    A notable intervention from the Jacques Delors Institute in 2012 from a cast of authors including Henrik Enderlein, Peter Bofinger, Jean Pisani-Ferry, and André Sapir – Completing the Euro. A road map towards fiscal union in Europe – was representative of this type of ‘narrative’.
    Many of the authors of this report were involved in various studies that gave rise to the design of the EMU in the first place.
    … the fiscal autonomy of the EMU Member States has been severely compromised by the SGP and the austerity packages forced onto many of the Eurozone economies during the crisis.
    It seems that democracy and autonomy can be violated when the Troika is imposing the terms, but then in other cases, it is upheld as a sacrosanct principle that cannot be compromised.
    That sort of hypocrisy has woven its way through the entire debate about economic and monetary integration in Europe and will continue to deliver sub-par outcomes.
    Enderlein and his cast of authors proposed a simple rule for the limits of democracy – “sovereignty ends when solvency ends” (p.7), which is astounding if you think about it.
    The application of this rule inevitably leads to a violation of democracy because the risk of insolvency is intrinsic to the flawed design of the monetary system.
    Member States are forced to issue debt in a currency they have no control over and the ECB is formally precluded from giving any guarantees (although of-course it has violated that prohibition via its huge bond-buying programs).
    Default risk and insolvency are always lurking, waiting for the next major economic downturn to arrive.
    Thus, according to the likes of Enderlein, as soon as a nation falls into crisis, its citizens lose the capacity to influence their own destiny and are, instead, at the behest of unelected officials in the European Commission, the ECB and the IMF.
    That vision has never appeared to me to represent a road map for a sustainable and prosperous Europe.
    While Enderlein and Co. proposed the introduction of a European-wide unemployment insurance plan, and hence they are now lauding Olaf ‘Wolfgang Schäuble’” Scholz’s recent support for the idea, their underlying approach to so-called “cyclical divergences” was to “enhance the real exchange rate channel” (p.28), which is code for making internal devaluation more responsive through increased labour mobility and wage cuts in declining regions.
    At the height of the crisis, Enderlein and Co. invoked the standard neo-liberal approach – that workers from recessed regions should move to growing regions and those who stay should worker harder for less pay.
    The virtue of stable social communities built on family structures and community spirit is ignored by this mainstream approach.
    The economy rules and workers are considered meagre pawns in the decisions by management on where to locate industry.
    One would think a primary aim for any durable solution to the European crisis is to keep regions viable, especially as Enderlein and Co. recognised that “Linguistic and cultural barriers are certainly important” (p.8).
    The belief (assertion) that labour mobility would be of sufficient magnitude to provide a semblance of equalisation in unemployment rates within the Eurozone is denied by the overwhelming evidence that between 2009 and 2011 there was no discernible movement among citizens who were already resident within the Eurozone (Source).
    Enderlein and Co. propose the European-wide unemployment insurance plan – “a cyclical adjustment insurance fund” (p.30) – because they acknowledge that a reliance on so-called ‘structural’ adjustments would be “unlikely to solve the inherent difficulties” facing the Eurozone during a major economic downturn.
    The characteristics of such an ‘insurance’ scheme would be:
    1. The fund would be managed by Eurozone finance ministers and build its kitty from contributions from nations experiencing above the Eurozone growth rates and pay out to nations in crisis.
    2. The scheme would thus force nations to reduce their domestic spending in times of buoyant economic growth and provide some relief in bad times.
    3. Significantly, Enderlein and Co. stress the “the system cannot become a hidden instrument for permanent transfers” (p.31) and nations might only be permitted to “take out what they once paid in” (p.32).
    4. Once again the presumption is that the ‘federal’ redistribution would be neutral across the economic cycle and across space, a proposition for which there is no rationale other than fiscal conservatism.
    A later proposal from Jean Pisani-Ferry and Co. released on January 10, 2013 – Options for a Euro-Area Fiscal Capacity – rehearsed the same narrative of fiscal neutrality and no permanent transfers.
    In a recent Op Ed in Der Spiegel (June 6, 2018) – Fixing the Euro: The Time to Act Is Now – Enderlein reinforced the austerity narrative.
    He considers the current instability in Italy and its poor economic performance since joining the euro.
    Among the options for Italy he rejects exit, bailouts, the abandonment of austerity, debt restructuring and more, because:
    Every single one of these measures would likely initially lead to an additional crisis – either political or financial, either in Italy or in the rest of Europe …
    Most options, viewed soberly, aren’t really options at all.
    You get the picture.
    With high levels of entrenched unemployment, unsustainable inequalities across its regions, youth that are being denied any chance of a productive working life, zombie banks on the edge of insolvency, stagnant per capita income and decaying social institutions, Enderlein rejects fiscal stimulus as an ‘option’ because it would destabilise Europe.
    Words and phrases are used by Enderlein in relation to the options, such as:
    “plunge Europe into an even deeper crisis” (exit)
    “uncontrollable consequences for the European banking and insurance system” (if any debt relief)
    “unrealistic” (any state support for the crumbling banking sector)
    “unable to afford” (almost any progressive policy).
    He also rejects any further ECB bond-buying as “dangerous … It is not the central bank’s job to solve political crises”.
    One might ask who has the job when the currency-issuer is the central bank and the fiscal agents (the Member States) have no direct relationship with the central bank nor any currency-issuing capacity.
    And so we get what Enderlein calls “new forms of assistance” which must not be based on any concept of a “transfer union”, the very characteristic that makes working federations effective.
    He cited the “group of 14 French and German economists” of which he was one, which issued a statement on January 17, 2018 – Reconciling risk sharing with market discipline: A constructive approach to euro area reform.
    They include the European-wide unemployment insurance scheme among their ‘reforms’ and note that:
    Member countries would pay into a fund, with countries particularly prone to major economic disturbances paying disproportionate contributions.
    So the weaker EMU nations would be even more screwed during times of growth and not be able to spend on domestic initiatives as much as the growth might permit.
    And then when recession hits, they would still have to pursue fiscal austerity (obey the SGP rules) but be able to get some of their own funds back as long as the funds were repaid again later.
    This is just another inadequate credit provision along the lines of the proposal to create the European Monetary Fund.
    What nations need in times of crisis is the capacity to allow their fiscal positions to go into whatever deficit is consistent with the non-government saving desire (collapse in spending).
    In short, the proposal suggests it is like an automatic stabiliser but it lacks the essential characteristics.
    It would retard public spending when there was growth, even if that public spending was driving growth and it would not allow the deficit to grow to necessary levels in times of downturn.
    It is just a credit facility within the existing austerity framework. It would unlikely be sufficient in that regard to prevent elevated levels of unemployment.
    A far better way to strengthen the automatic stabilisers is to introduce a European-wide Job Guarantee funded by an enhanced Euro-level fiscal capacity tied in with the currency-issuance power of the ECB.
    But then pigs might fly!
    Scholz made it clear – his support for a European-wide unemployment insurance scheme was conditional on it being fiscally-neutral and without any transfers between Member States being consolidated.
    The economists pushing for this sort of scheme also want to punish the poorer nations more than those that are less prone to crisis by further restricting their capacity to stimulate public service delivery in good times.
    For the Europhile cheer squad to think this sort of scheme will represent fundamental reform shows you how far removed they are from any reality.
    Groupthink and denial on a very large scale.

  • joseba

    Alemania eta eskuindarrak

    Bill Mitchell.en The AfD and its ilk is a sideshow in the neoliberal takeover
    The weekend before last I was in Germany (and Bavaria) at the same time as the – Bavarian state election. The results for the SPD (Social Democratic Party) were disastrous losing 20 seats (down from 42) and gaining only 9.7 per cent of the vote (down from 20.6 per cent). The Greens came second, winning 20 extra seats (to 38) and 17.5 per cent of the vote (8.6 per cent last election), while the neo-fascist AfD party, which did not contest the last election, came in fourth, gaining 22 seats (10.2 per cent of the vote). There is a growing fear that the AfD and its counterparts across Europe will grow further and push Europe back into its dark fascist days. One would not conclude that from the Bavarian voting patterns. Further, to construct what is going on in Europe as a right-wing counter to a ‘social democratised’ Europe, which is a common narrative among the Europhile Left is seriously missing the point. The social democratisation of Europe has been in retreat for decades under the onslaught of a very sophisticated campaign from the elites on the Right and often it has been the traditional Left political parties that have pushed the neoliberal agenda more vigorously than the conservatives. The AfD is a sideshow in this deeper take over of our democracies by capital. Root and branch change is needed not a few ‘reforms’ around the edges to make the Eurozone less of a disaster for workers than it currently is.
    As a relevant aside, while I was in Lisbon recently, I took a little time out to visit the magnificant Museu Coleção Berardo in the coastal town of Belém.
    This is the town that Vasco de Gama sailed out of on his journey to find the first sea route to India.
    The museum is quite a building but of particular interest was an exhibition of photographs from the Argentine artist and human rights activist Marcelo Brodsky.
    The Marcelo Brodsky. 1968: The Fire of Ideas is a temporary exhibition, which runs from September 20, 2018 to January 6, 2019.
    If you are in Lisbon then it is worth the train trip to Belém (a few stops from Baixa).
    The exhibition:
    … features archival images of student and worker demonstrations around the world, carefully annotated by hand in order to deconstruct what lay behind worldwide social turbulence in the late 1960s. Images of anti-Vietnam war demonstrations in London and Tokyo sit alongside protests in Bogota, Rio de Janeiro, Mexico, Prague and San Paolo against military regimes and oppressive government structures.
    More information is available – HERE.
    I was becoming very politically active in my teenage years and while 1968 was a little early for me by 1970 and beyond we were plotting revolution in Melbourne, Victoria.
    Some of the characters in the photos that Brodsky presents in the exhibition I knew personally. It reminded me of those days of challenge and struggle and how that massive energy was soon diverted and thwarted by a major organised and very sophisticated response from capital and the elites that serve it.
    You will see why this is a relevant aside presently.
    Official Results in the Bavarian State election
    There were some very interesting results in the Bavarian election which run counter to the narrative being spun that the populist right (what we might call the downtrodden ‘left behind’ right) is taking over.
    You can see the detailed results from the State Election on 14 October 2018 – provided by Der Landeswahlleiter des Freistaates Bayern (the Bavarian electoral office).
    What occurred in the conservative city of Munich is quite amazing.
    The following graph shows the proportion of votes gained by the major parties in the Munich area in the 2018 state election (columns) and the 2013 election (red triangles). AfD did not contest the 2013 election.
    The demise of the two main parties (CSU and SPD) in the last five years is clear.
    The stunning result comes from the Greens who improved their proportion by 18.2 percentage points (a much greater gain than AfD). (…)
    This CityLab analysis (October 19, 2018) – Weirdly, Munich Is Now Germany’s Greenest City – provides further details, calling the electoral shift in Munich an “unprecedented rearranging of the furniture on Germany’s political scene”.
    Including all the Munich electorates, saw the Greens gain 42.5 per cent of the votes, “more than two and a half times” that gained by the “Merkel-affiliated CSU”.
    The reason this is worth mentioning is that Munich is a “rather conservative” city.
    Generalising, the Greens took second place for Bavaria overall, a state that has been “an unquestioned stronghold for the right”.
    What we glean from the results is that the swing away from the major parties (CSU and SPD) is not just coming from a movement to the neo-fascist AfD and other conservative parties.
    The Greens result shows that the shifts are also moving left.
    Further, the CSU in Bavaria has been trying to stifle the popularity of the AfD by touting rather draconian policies against migrants and running a law and order campaign – in other words, shifting to a much harder right position itself.
    So, its failure (even though it still gained the highest proportion of votes in Bavaria overall, is a sign that the narrative claiming there is a shift to the populist right going on needs to be seriously qualified, if not rejected.
    The clearest trend is that the “SPD has become something of a spent force since losing power in 2005”.
    What is apparent is that there is a sense of loss among voters and that the narratives being presented by the major parties, particularly the SPD are not giving voice to that anxiety.
    And when their is a void, there are opportunities for other voices to be heard.
    Essentially, the AfD have given voice to those concerns. But a more hopeful trend is that the Green alliance is now challenging the right-wing forces for those votes.
    No-one would suggest that the Green Party is the most left in Germany. Die Linke (The Left), by the way, doubled its proportion of the vote in Munich (2.3 to 4.6 per cent) and increased its overall vote in Bavaria by 1.1 percentage points to 3.3 per cent.
    But the narrative is now not a simple as right-wing populists taking over Europe.
    The nuance is clear and should be a lesson for the mainstream Left (social democratic parties). A progressive voice is attractive even in conservative heartlands.
    The problem is that the traditional social democratic parties have become so timid and tainted with neoliberal narratives that they no longer have any appeal.
    They use the metaphorical language of neoliberals thinking it makes them sound responsible when, in fact, it just renders them more irrelevant to an electorate that is increasingly aware that the standard story is failing them.
    1968 revisited?
    On that theme, there was an interesting article in the International Politics and Society (IPS) Journal last a week or so ago (October 12, 2018) – The far-right playbook – which brings the previous two vignettes together.
    The tenet entertained in the article is that “far right’ movement in Europe is drawing inspiration from the way the Left protest movement in the late 1960s conducted their campaigns (as depicted by the Marcelo Brodsky exhibition).
    The conjecture in the article is that:
    Fifty years after Europe’s student movements marched in the streets from Scandinavia to Yugoslavia, 1968 has never been more relevant. In Germany, France, Sweden, the Netherlands and elsewhere, the liberal conclusions of the late 60s protests – and, just as critically, their methods – are at the heart of the existential crisis that is shaking Europe’s enlightened, democratic foundations. The ongoing battle over 1968’s legacy will determine whether Europe remains on its postwar path or swerves to the right.
    If the far right succeeds in overturning the post-1960s cultural revolution – and this has already begun – it will have the student-led anarcho-leftists to thank. The national populists, Identitarians and hard right have deftly co-opted the tactics of their nemeses and applied them auspiciously to their cause.
    This is the sort of statement that comes out of the Europhile Left regularly.
    In a sense, there is a deep denial going on that is symptomatic of the on-going narrative coming from the Europhile Left that Europe is fine and just needs a little reform around the edges.
    I found that IPC hypothesis to be interesting because it assumes that the demands that we (‘the collective) made in 1968 and thereabouts have become the norm in Europe (and beyond since the 1970s) – the “enlightened, democratic foundations” – and are now in danger of being dismantled by the authoritarian right that is copying the Left’s 1968 game plan.
    How then do we explain the increasing domination of the neoliberal paradigm since the 1970s, much of it being antithetical to the things that the student rebellions in 1968 were fighting for?
    The IPC story seems to believe that the view expressed by the far-right “AfD spokesperson Jörg Meuthen” that Germany “is deeply social-democratised and free of patriotism” and “fallen into valueless relativism” is representative of the reality facing Europe.
    Muethen’s opinions are those of an extremist spinning a political yarn to give voice to the angst facing Germans, particularly those in the East who, as a consequence of the forced reunification, lost jobs, homes, pensions and identity.
    Social democracy in Europe has been in serious decline for decades as the neoliberal machine slowly permeated all levels of our societies.
    In this blog post – The right-wing counter attack – 1971 (March 24, 2016) – I discussed in some detail how the organised elite right (rather than the downtrodden ‘left behind’ right that AfD represents) responded to the ‘1968’ turmoil.
    It was not a response that copied the poorly resourced student protests in the streets of the major cities around the world which is what the IPC article claims is happening now in Germany with the AfD.
    In effect, one of the reasons the 1968 movements were so easily pushed aside was because the elites had massive resources at their disposal to capture governments, take over the mass media, infiltrate educational institutions and in the US, take over judicial bodies that interpret law.
    The IPC article notes that:
    In light of the right’s repudiation of the student revolt and its aftershocks, it is astounding that they manage to remove the ideological blinkers long enough to borrow from it. Their success today is at least in part attributable to the lessons they extracted from the left’s means of protest, appeal and politics, and applied to their own purposes. It took a few decades to perfect it, but today they’re using the left’s strategies to their own considerable benefit
    Sure enough, there have been initiatives for some decades in the form of “newspapers and magazines, clubs, institutes, foundations, publishing houses, and … international congresses” that have brought like-minded right-wingers together.
    In this way, there is some similarity with the way the student Left organised and combined with student-worker alliances to push their message.
    But what is happening on the streets of Europe now with AfD and its ilk is not of the same scale as the way the organised right elites responded in the early 1970s to the growing demands for equity and participation from the student Left protests.
    And the election results in Bavaria suggest that while AfD made up some ground they were completely outclassed by the centre-left Green Party.
    Hardly a sign that the downtrodden ‘left behind’ Right is on the ascendancy to domination.
    What the Right elites did in the early 1970s was entirely different to what, say the AfD are trying to do now – to win a few votes here and there such that a forced coalition with the mainstream conservative parties (such as the CSU or CDU in Germany) would be inevitable.
    In the blog post cited above I introduced the famous Powell Manifesto (August 23, 1971) – Attack on American Free Enterprise System – which the US lawyer Lewis F. Powell, Jr prepared for the US Chamber of Commerce.
    This counter to the Left wasn’t about street protests.
    It was based on the view formed by the Right, that if they wanted to move the balance of power away from workers towards profits, then they had to capture the government legislative capacity.
    Meanwhile, they started building a narrative that the Left swallowed, particularly the globalists (for example, the Europhile Left today), that the ‘state’ had become increasingly powerless as capitalism became more global.
    While the Left was getting lost in post modernist-style identity issues, the Right were busily taking over the state not by forming protest parties and gaining a few seats here and there, but by infiltrating the major extant political parties and corrupting their missions with dollars, revolving doors and the like.
    Far from carrying placards and shouting slogans, the Right were very clever in the way they divided the Left and took control of governments.
    I wrote about the hilarious way in which the CIA co-opted the Continental Left Marxists without the latter even knowing in this blog post – The divide-and-conquer strategy of the CIA in France 1985-style (August 24, 2017).
    This allowed the right-wing forces to penetrate the Mitterand Socialist government and pressure it to make its famous austerity turn in 1983, which unambiguously attacked the prosperity of workers and set Europe up for its most neoliberal, corporatist move to date – the creation of the Eurozone.
    So the likes of the AfD and their counterparts throughout the world are right-wing for sure, but their strategies and tactics are rather crude and their success will be ephemeral.
    The main show in town is the entrenched, institutional neoliberalism that has pervaded the media, educational institutions, politicial parties of all persuasions, and elsewhere and maintains the hegemony of capital in more intrinsic ways.
    They have rich networks where top positions are maintained by like-minded individuals and they have plenty of cash to build think tanks, fund massive propaganda exercises and to buy off politicians.
    And while the AfD might think that Europe has been overrun by ‘social democrats’, the reality is that the social democratic parties became neoliberal decades ago and have not presented as an Oppositional Left since that time.
    It is hard, for example, to think that the Blairite Labour Party, or the Social Party in France, or the PvdA in the Netherlands, or the SPD in Germany, reflect any of the values that we were espousing in 1968.
    Thomas Fazi and I consider these issues in detail in our latest book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017).

  • joseba

    Alemaniako hazkundearen estrategiaz
    Bill Mitchell-en German growth strategy falters – exposes deep flaws in the EU architecture
    Last week (February 14, 2019), Eurostat released its latest national accounts estimates – GDP up by 0.2% and employment up by 0.3% in the euro area – which confirmed that EU growth rates have declined significantly over the course of 2018. Moreover, the December-quarter data confirmed Italy is in official recession and Germany recorded zero growth (thereby avoiding the ‘technical recession’ category after contracting by 0.2 per cent in the September-quarter). Export expenditure accounts for nearly 50 per cent of Germany’s GDP – a massive proportion. It has adopted a growth strategy based on impoverishing its own residents through flat wages growth and a sustained proportion of low-paid, precarious jobs and setting its sail on sucking out expenditure from other nations (in the form of their imports). This has been particularly damaging to the Eurozone partners but also exposes Germany to the fluctuations in world export markets. Those markets are softening for various reasons (economic and political) and, as a result, German growth has hit the wall. The solution is simple – stimulate domestic demand, push for higher wages for workers, outlaw Minijobs, and start fixing the massively degraded public infrastructure that the austerity bent has starved. Likelihood of the German government adopting that sort of responsible policy. Zero to very low. There is the problem of the Eurozone from another angle. The main economy cannot play the game properly.
    I considered the first release of the European national accounts data (from December) in this blog post – Nations heading south as austerity continues (February 6, 2019).
    I also considered aspects of Germany policy strategies in this blog post – Germany – a most dangerous and ridiculous nation (December 27, 2017) – which also provides several links to related analysis that I have presented over the years.
    This is a very dramatic history.
    Prior to the adoption of the euro, Germany was increasing its openness to world trade but more or less in proportion – exports and imports were rising as a share of total GDP.
    But from the point Germany adopted the euro, it changed strategy entirely and began its export mania while suppressing import expenditure via suppression of domestic income growth. I will discuss the evolution of minijobs below.
    German exports of goods and services has moved from being around 20 per cent of GDP in 1995 to 49.8 per cent of GDP in the third-quarter 2018.
    That is a massive structural shift and comes at the expense of the material well-being of the German people who have endured an increase in precarious employment, flat wages growth, and largely flat consumption spending.
    Throughout 2018, the export ‘miracle’ has faltered and that helps to explain the dramatic GDP slowdown. Clearly German exports are being negatively impacted by the US trade shenanigans and the slowdown of the Chinese and British economies.
    Germany’s ongoing violation of the EUs Macroeconomic Imbalance Procedure – as a result of it consistently exceeding the external deficit threshold of 6 per cent of GDP, has had ramifications through the Eurozone.
    By dramatically reorienting its economic growth strategy away from a balance between domestic and external expenditure, through a combination of wages growth suppression, fiscal surpluses etc, Germany has been accumulating financial claims against the rest of the world.
    How might this imbalance be resolved? There are a number of ways possible.
    A most obvious solution would be for foreigners to borrow funds from the domestic residents. This would lead to a net accumulation of foreign claims (assets) held by residents in the surplus nation.
    Another solution would be for non-residents to draw down local bank balances, which means that net liabilities to non-residents would decline.
    Thus a nation running a current account surplus will be recording net private capital outflows and/or the central bank will be accumulating international reserves (foreign currency holdings) if it has been selling the nation’s currency to stabilise its exchange rate in the face of the surplus.
    Current account deficit nations will record foreign capital inflows (for example, loans from surplus nations) and/or their central banks will be losing foreign reserves.
    Large current account disparities emerged between nations in the 1980s as capital flows were deregulated and many currencies floated after the Bretton Woods system collapsed.
    European nations such as Germany, the Netherlands and Switzerland were typically recording large and persistent current account surpluses and with a significant proportion of their trade being with other European nations, the imbalances grew within Europe as well as between Europe and elsewhere.
    Think about the sectoral balances arithmetic. If a Member State achieve a balanced fiscal outcome and is sitting on the current account surplus threshold (6 per cent), then its private domestic sector will be saving overall 6 per cent of GDP.
    Where will those savings go?
    I have discussed how Germany maintained its external competitiveness once it could no longer manipulate the exchange rate in previous blogs.
    Please read my blog posts:
    1. Germany is not a model for Europe (March 2, 2015).
    2. Germany should look at itself in the mirror (June 17, 2015).
    The savings may go into the domestic economy if there are profitable opportunities to invest. But in Germany’s case, its whole strategy was based on suppressing domestic demand (Hartz reforms, wage suppression, mini-jobs etc), and so profitable investment opportunities were limited in the German economy.
    As a result, German capital sought profits elsewhere.
    The persistently large external surpluses which began long before the crisis (and 6 per cent is large) were the reason that so much debt was incurred in Spain and elsewhere. German investors pushed capital externally.
    The combination of domestic demand suppression and huge external surpluses means that Germany’s outflow of capital is ridiculous.
    The imblance in Germany then becomes an imbalance elsewhere and given the dominance of intra-European trade, those resulting imbalances make life precarious for the weaker European nations.
    To resolve this problem (which is a massive imbalance between domestic saving and investment), Germany requires higher domestic demand and faster wages growth, both to boost the very modest consumption performance and to attract investment into the domestic market.
    It also could stimulate public spending – say, to start the long process of restoring quality to its public infrastructure which has been seriously degraded by the austerity mentality of successive German governments.
    But such a change would be at odds with the mercantile mindset that dominates the nation because it would reduce the competitive advantage that Germany enjoys over other nations that have treated their workers more equitably.
    The Minijobs are now a permament feature of Germany
    The official unemployment rate in Germany is low by any standards (other than full employment). In the September-quarter 2018, it was recorded at 3.8 per cent.
    The Hartz reforms accelerated the casualisation of the labour market and the precariousness of work increased. Hartz II introduced new types of employment, the ‘mini-job’ and the ‘midi-job’ and there was a sharp fall in regular employment as a consequence.
    Mini-jobs provide marginal employment with no security or entitlements and allow workers to earn up to 450 euros per month without paying taxes, while the on-costs for employers are significantly lower. The no tax obligations also mean that the worker receives no social security protection or pension entitlements.
    The neo-liberal interpretation of these changes is that Germany underwent a ‘jobwunder’, or jobs miracle.
    However the speedy increase in employment that followed (and the decline in official unemployment) can also be viewed less optimistically.
    Profits win out over wages
    The Government in cahoots with industry also engineered a massive redistribution of national income to profits and away from wages.
    In general, German real wages (the purchasing power equivalent of the wages received by workers each week) failed to keep pace with growth in productivity (how much workers were producing each hour) and as a result there was a massive redistribution of national income to profits.
    After Germany adopted the euro, there has been a 3.53 per cent swing to the profit share at the expense of workers.
    The rise in the shares during the crisis signifies the fact that national GDP (output) was falling while total wages were not falling as fast or were relatively constant. As a consequence the ratio of the two rose.
    Why does this matter? Until the early 2000s, real wages and labour productivity had typically moved together in Germany as they did in most advanced nations.
    If real wages and labour productivity grow proportionately over time, the share of total national income that workers (wage earners) receive remains constant.
    However, once the neo-liberal attacks on the capacity of workers to secure wage increases intensified in the 1980s in many nations and, later in Germany, a gap between the growth in real wages and productivity growth opened and widened.
    This led to a major shift in national income shares away from workers towards profits.
    The capitalist dilemma was that real wages typically had to grow in line with productivity to ensure that the goods produced were sold. If workers were producing more per hour over time, they had to be paid more per hour in real terms to ensure their purchasing power growth was sufficient to consume the extra production being pushed out into the markets.
    How does economic growth sustain itself when labour productivity growth outstrips the growth in the real wage, especially as governments were trying to reduce their deficits and thus their contribution to total spending in their economies? How does the economy recycle the rising profit share to overcome the declining capacity of workers to consume?
    The neo-liberals found a new way to solve the dilemma. The ‘solution’ was so-called ‘financial engineering’, which pushed ever-increasing debt onto households and firms in many nations.
    The credit expansion sustained the workers’ purchasing power, but also delivered an interest bonus to capital, while real wages growth continued to be suppressed.
    Households in particular, were enticed by lower interest rates and the vehement marketing strategies of the financial engineers. It seemed too good to be true and it was.
    Germany adopted a particular version of this ‘solution’.
    The funds to underwrite this credit explosion came from the increased profits that arose from the redistributed national income.
    For some nations, such as Germany, the large export surpluses also provided the funds to loan out to other nations.
    Germany didn’t experience the same credit explosion as other nations. The suppression of real wages growth in Germany and the growth in the (very) low-wage ‘mini-jobs’ meant that Germany severely stifled domestic spending.
    Schröder’s austerity policies forced harsh domestic restraint onto German workers, which meant that Germany could only grow through widening external surpluses.
    So the external strategy, which has caused irreparable harm to its Eurozone partners, has also impoverished its own population. The German approach, which is echoed in the basic design of the common currency and the fiscal and monetary rules that reinforce it, could never be a viable model for prosperity throughout Europe.
    And now with the world export demand declining for various reasons, the vastly unbalanced German economy is faltering.
    Germany has adopted the strategy that it can permanently game its Eurozone partners through its mercantilist approach.
    The massive external trade surpluses, which then manifest as capital exports to its Eurozone partners, not only generate low returns for the investors but further complicate the debt dynamics within the union.
    The German population do not win, nor do Germany’s partners.
    And when the world export demand softens, the whole show becomes shaky again.
    Another demonstration of the unviable nature of the common currency.

    bill says:
    Wednesday, February 20, 2019 at 6:19
    Dear Andrei (at 2019/02/19 at 11:10 pm)
    There is no hatred for Germans in my writing.
    And the blog post yesterday was rather factual.
    1. Yes, the divergence between domestic demand and GDP growth occurred before the Hartz changes. There was a major recession in Germany just prior to the Hartz period, which killed growth. I have written about that before. It is famous because Germany was the first nation (with France, also enduring a recession) that breached the Stability and Growth Pact and then bullied Brussels into altering the rules rather than being sanctioned for the breach.
    2. Hartz then consolidated that divergence until the current day by suppressing workers’ pay and creating millions of low pay work.
    3. I didn’t mention WLTP – but I cannot include everything. I did mention Trump and China and the UK as factors causing German exports to decline. I could have written a whole post about the woes of the German car industry including its deliberate fraud concerning environmental standards which have impacted on its current export performance. But that would have been a diversion. The point was that being so reliant on exports renders an economy susceptible to all manner of shifts in spending patterns and regulative changes.
    4. Growth hits the wall when we see a September-quarter of -0.2 per cent and a December-quarter of zero growth. Most recessions or near recessions are short affairs anyway. For various reasons, German GDP growth has hit a stop (wall, whatever you want to call it). History suggests it will rebound rather quickly. What is the point you want to make
    5. German reunification was a major disruption and I have acknowledged that in the past and devote considerable time to it in my 2015 book Eurozone Dystopia. But to say there is no slack in the labour market is to deny the massive underemployment, partly manifest in the 20 per cent of the workforce engaged in MiniJobs.
    Anticipating the infrastructure deficit that arose as a result of reunification, it would have been more sensible to set up skill development than to shunt people into MiniJobs.
    6.The MiniJobs graph is not detailed enough (scale) to fully appreciate the recent movements. Over 2018, the total number of MiniJobs were March-quarter 7,388,712 (18.3%); June-quarter 7,527,982 (18.7%); September-quarter 7,548,065 (18.5%) and December-quarter 7,563,100 (no proportion because latest labour force data is not available yet).
    The number is rising. And the trend in the proportion is rising (very slowly). That is an accurate statement.
    7. The blog post was not a micro analysis of the German labour market. It was about the imbalance in the growth strategy. A detailed analysis of demographic patterns of involvement in various types of labour force engagement was not the focus, notwithstanding the interest.
    Thanks for providing additional information in a considered comment.
    It doesn’t negate what I wrote. Just enriches it.
    best wishes

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