By Mathew D. Rose, a freelance journalist in Berlin
“Success is relative” wrote T. S. Eliot in his play The Family Reunion, “It is what we can make of the mess we have made of things.” This is an apposite description of the current “success” in the EU. A financial and political disaster has been transformed into a permanent calamity. Most of southern Europe dwells in an economic depression and the rest does not appear to be recovering. Success is currently defined as not being in recession. As “growth” in the third quarter fell to 0.2% in the EU (in the Euro-currency group 0.1%) there is talk of “recovery still slowly stabilising”. It is truly impressive to what depths success can plumb.
The reality of the malaise came home to many as the year-on-year core inflation rate (excluding volatile items such as energy and food) in the EU fell to 0.8% in October. With deflation now a threat for many EU member states (it is already reality in Greece, Bulgaria, Cyprus and Latvia), one must ask not only how the highly indebted EU nations are to repay their debts, but how the European Union can achieve an internal rebalancing? If Germany with its high productivity has low inflation, the other EU countries, who would have devalued their currency before the inception of the Euro, will have to dramatically deflate their economies – and that after years of virulent austerity. This might seem a simple solution for economists and bureaucrats, but EU member states are democracies and patience in many of the peripheral nations – and not only those – is running very short.
The situation on the ground is dramatic. In October the International Federation of Red Cross and Red Crescent Societies published a report entitled “Think Differently – Humanitarian impact of the economic crisis in Europe”, which provides sixty pages of sobering reading. The situation within the 52 nations that comprise Europe according to the report is not “stabilising”, but spiralling downwards: “There are now more than 18 million people receiving EU-funded food aid, 43 million who do not get enough to eat each day and 120 million at the risk of poverty in the countries covered by Eurostat” (the EU nations plus Iceland, Norway, Switzerland, Turkey and FYR Macedonia). Today one of the Red Cross’s principal tasks in Europe is feeding an increasing number of people, because without this aid the affected persons could not pay their rent und utilities. The Spanish Red Cross has for the first time had to launch an appeal to assist the citizens of its own country.
In the same month Trussell Trust foodbanks in the United Kingdom reported that “Over 350,000 people received three days’ emergency food from between April and September 2013, triple the numbers helped in the same period last year.” Yet the UK claims to be enjoying the most robust recovery in Europe.
Yves Daccord, Director General of the International Committee of the Red Cross, gave an important warning earlier this year: “Europe has a long record of maintaining a plausible trust in the future of its young people, even during turmoil. Not anymore. With prices rising and rampant unemployment, young urban people no longer see any future for themselves, and governments start losing credibility and legitimacy.”
Probably the most unsettling aspect of the crisis is that of Europe’s youth. This is not only reflected in youth unemployment – almost 25% in the Euro zone states (Greece and Spain are approaching 60%, Italy is over 40% with Portugal not far behind and Ireland with close to 30%. One reason the numbers are not higher is emigration. In all these nations, with the exception of Italy, which is inundated by refugees, emigration has outstripped immigration. Those departing are purportedly young people seeking work. This is also affecting the birth rate in Greece, which has fallen 15% in the past four years according to Greece’s health ministry. This has resulted in part due to a radical increase in miscarriages, which in 2012 increased threefold in comparison to the previous year. For Giorgos Kreatsas, head of the maternity clinic at Athens University, this is a direct result of the economic pressures and insecurity families are facing. Add to this a 40% cut in health services since the crisis commenced.
This cannot be the brave new world envisioned by the founders of the EU.
Why are things not getting better? In October the Directorate-General for Economic and Financial Affairs of the European Commission published a report “Fiscal consolidations and spillovers in the Euro area periphery and core” by Jan in’t Veld, one of its economists. The author comes to the conclusion that “Germany and other core euro area countries” through their austerity policies not only reduced growth in the periphery EU nations, but also increased their debt-to-GDP ratios. This, according to the author, could have been mitigated. Due to a “flight to safety” Germany and the others had benefited from low interest rates on 10-year government bonds, which sank to below 2%. These nations were in a position to increase public expenditure to stimulate the EU domestic market, which would have benefited the periphery nations. Instead they reduced spending. Germany refused to help, enjoying the benefits of cheap credit and a weak Euro, which enabled it to find new markets to replace exports lost in Europe due to the economic downturn.
Jan in’t Veld concludes that
Spillovers from consolidations in Germany and core euro area countries have worsened the overall economic situation. A temporary fiscal stimulus in surplus countries can boost output and help reduce their current account surpluses. The improvement in current account deficits in the periphery is however small.
In fact, in the periphery nations it is growing worse.
A month after the publishing of Jan in’t Veld’s paper the US Treasury came to a similar conclusion in its monthly report:
Germany has maintained a large current account surplus throughout the euro area financial crisis, and in 2012, Germany’s nominal current account surplus was larger than that of China. Germany’s anemic pace of domestic demand growth and dependence on exports have hampered rebalancing at a time when many other euro-area countries have been under severe pressure to curb demand and compress imports in order to promote adjustment.
In 2013 Germany is aiming for a record trade surplus of 200 billion Euros (2.72 billion dollars), the equivalent of seven per cent of GDP.
The German government dismissed the Treasury criticism: “There are no imbalances in Germany that need correction,” a finance ministry spokesman said. “On the contrary, the innovative German economy contributes significantly to global growth through exports and the import of components for finished products.”
In other words Germany has no intentions of assisting Europe’s recovery. This once again became obvious when the European Central Bank reduced its benchmark interest rate in a surprise move to a record low of 0.25%, down from 0.5% to combat the increasing deflationary threat within the EU.
Again the Germans railed against this measure, hitting below the belt and claiming that the ECB’s head, the Italian Mario Draghi, was using cheap credit to prop up banks in his financially beleaguered country. Both of Germany’s members in the ECB, voted against the proposal. The Germans seem to be obsessed with the ECB providing an ideal monetary policy for them at the cost of others. Since the inception of the financial crisis the ECB and EU have obsequiously been following the German dictate, however with horrendous consequences.
What Draghi and the ECB members who voted for the interest reduction know is that there is just so much suffering and sacrifice that a democracy will tolerate. The point was reached long ago for many EU nations. Germany – at least its wealthies ten percent – to the contrary, is not only indubitably the winner of this crisis, but has gained hegemony in the EU that was never supposed to have happened.
In May of next year there will be an election for the EU parliament. What many in the United States with its political history of two main parties do not understand is that in Europe many people do not vote for political parties, but against them. To show their displeasure with the political class they select a “protest party”, not because they necessarily reflect their personal preference, but to express their disenchantment with the traditional parties. With regard to the current management of the financial crisis in the EU this will doubtlessly occur and rightly so.
Unfortunately most of the parties well positioned for an anti EU establishment vote come from the far right, parties such as the Front National in France, the Freedom Party in the Netherlands or UKIP in the United Kingdom. All of these are strongly anti-EU and will score resounding successes. Even in Germany, the newly established party “Alternative for Germany”, Europe’s newest rightist populist party, which criticises the German government for being too generous to its EU neighbours and wasting German taxpayers’ money on profligate nations, will probably score a resounding success. Following these elections the EU parliament will contain a large fraction that is for its dissolution. This is still another crisis in the making.
Anyone hoping for a change in policy by the new German grand coalition government only needs to read its programme concerning the EU: “To insure that Europe finds a sustainable solution to its crisis necessitates a comprehensive political approach, a structural reform for more competition and strict austerity, with investment in growth that is a socially balanced.” In other words, we can expect more of the same.
The question is, if it might not be better to dissolve the European Union in an orderly fashion instead of continuing the German led calamity. One saw what became of Germany’s last attempt to create a new European order seventy-five years ago. The current situation shall only be complicated following the European parliamentary elections, when it is infused with ultra-right populist parties. Europe seems to be falling back upon a formula that ended in disaster once before – a disaster caused by governments who became spectators of their own inaction – until it was too late.