spiegel.de
Following a summit meeting in Paris, Angela Merkel and Nicolas Sarkozy have announced proposals to introduce a "true European economic government" as part of a long-term plan to battle the debt crisis. They also appear to have ruled out issuing euro bonds, at least for the time being.
So, which of them gets to wear the crown of the
Economic European Empire?
You guys do realise that this plan is a pile of crap?
Realism is not appreciated, get used to it. I did.
1) "Economic government" - not more than another institutionalised chatting club with that Rompuy guy as head. Maybe nice, maybe not but nothing that changes anything.
And what a wonderful choice he is! Just think about it: you ant to inspire confidence in your new "european government", so you try to appoint to head it a politician from a country presently holding the modern record of inability to form a government!
The real cracker is 3), the debt brake for every member country that I think is going to be disastrous for Europe's economy. Let's go through it. Remember that the Eurozone already takes away any flexibility in terms of monetary and currency policy from its members. Now they're taking away fiscal policy as well. As monetary policy cannot suit all, possibly not even a few countries really well, national governments desperately need fiscal flexibility to soften the consequences of unfitting monetary policy. This door is now to be closed. A sensible coordination of fiscal policy would involve exactly the opposite, i.e. allowing for a combination of expansionary fiscal policy in some countries and more cautious fiscal policy in others depending on the macroeconomic situation of member countries and the Eurozone as a whole. If we get that debt brake for everyone the only tool available to adjust for differences between member states is wage policy. Of course, wage policy is a) harder to change for a government as it's mostly decided by employers and unions and b) only allows for small changes in a short period of time. In other words, wage policy is relatively inflexible by nature. I'm sure it's easy to see what it means to force such a rigid scheme of governance on a currency area with 17 very different economies and provide no tool for national adjustment at all.
It
can't be forced, it won't be applied, ever. This is a smokescreen, delaying tactics while desperate attempts are made to shore up several huge banks before the inevitable defaults. Even "eurobonds" would be only a delaying tactic. The purpose is to preserve the financial system as it is today. which is to say,
preserve the cause of this crisis!
European leaders still seem to believe that Europe can be rescued by cutting whereas the real problem is the utter lack of growth. If there's any way left to avoid bankruptcy than it is creating higher GDP than debt growth. Every measure they take, and that debt brake proposal adds to that, leads away from such a path. You can't stabilise the debt of heavily indebted countries if GDP flatlines. Has anyone ever studied fiscal policy under the German chancellor Brüning and its economic consequences in the early 1930's? That's what we're heading for. And some countries are probably already beyond the point where they could be saved.
There isn't any way to avoid bankruptcy except taxing the hell out of the wealthy in order to pay the debts... held mostly by the wealthy anyway! And in cases of
external debts to foreigners, there is no way to avoid default, point.
The whole debt thing is theater: as that american economist who got famous for predicting this crisis (which was was easily predictable anyway) said recently, Marx was right: capitalism must guarantee consumers for its goods, or it collapses. Sooner or later, the old idea of
accumulation profit meets an unbreakable wall. The idea is that the capitalist enterprise invests and then gets back its investment
plus some profit. That profit must come from somewhere. If, in the overall economy, the comparative share of profits grow, the non-owners of capitalist enterprises become comparatively poorer. Wealth gets concentrated. And the logic of capitalism always encourages further concentration...
For some 30 years already in western Europe, but especially in the last 15 or so,
the growth of consumption was financed by credit, which is unsustainable. The credit came from those accumulated profits, and in turn allowed further accumulation of profits, by allowing these profits an outlet which promised even further remuneration (interest). Credit growth thus reinforced the vicious system of capitalism (accumulation), all the while looking virtuous (increased profits and increased consumption - yay!). All the while until it became obvious that the debt could not be repaid. And that only becomes obvious when its interest cannot be serviced anymore - no one wants to piss in the party before it blows.
In an open capitalist system, say, a national economy engaged in trade with the rest of the world, this could be sustainable: if profits are lent
out of the country and production is exported, growth of profits (and of credit) and of production can continue. But the world is now "globalized", it
all went capitalist. Thus, the oft-repeated recipe "exports" cannot work for this global crisis. The only way profits can continue to grown, in the
closed global capitalist system, is if they are lent out to consumers for them to buy what their other income could not afford alone. Then those same profits
plus interest get lent out again. Rinse and repeat. All the while the accumulated capital in the credit bubble grows... It can't continue forever, because soon enough the interest itself becomes unaffordable to the debt-ridden consumers.
A
stable system would require:
- zero interest rates (debt could potentially accumulate forever?)
- zero profits (what's the point of making a profit with zero interest rates?)
but then it wouldn't be capitalist, would it?
Typical capitalist credit bubble. Nothing new. Except... the world is now "globalized". Capitalism, in a whole world system, is visibly a Ponzi scheme. That is what scares the elites. They cannot offer the public any way out of this without exposing and discrediting the scheme.
The one valuable thing of this Ponzi scheme is that debtors fell obligated towards creditors (who happen to be the wealthy and powerful); if debtors realize that their inferior position must exist by design of the system, they'd may just,
eventually (the only infinite thing is human stupidity), come to demand a different system.
Edit: Not directly related to my argument but still an interesting opinion piece to read as alternatives for saving the system are discussed:
Philip Pilkington: Profits in a Capitalist Economy – Where Do They Come From, Where Do They Go?