Thursday, 29 September 2011

Bad dreams in the eurozone - Austerity, Austerity and not a recovery in sight

How can you expect growth without investment or stimulus packages?  This is question that is screaming to be asked from the European leaders and the ECB who serve up the same policy: menu du jour, austerity slop/soup.   

The policy in poetic form reads thus, Austerity, Austerity, and not a recovery in sight.
Look at the growth figures, or should I say non-growth figures of the Gross Domestic Product for various economies in the second quarter and they only serve to prove this point. The UK 0.2% growth, the USA 0.3% growth, Germany 0.1% growth, the eurozone average is an anaemic 0.2%.   Top of the eurozone charts with growth rate of three times the zone average is Belgium.  Belgium has been without a Government now for 15 months. 1


Angela Merkel understands that the euro is more than a currency and said as much to her parliament “The euro is a guarantor of a united Europe, or put it another way: if the euro fails, Europe fails.”2

With that all in mind, what is being done to save the dream of a United States of Europe.  The ECB are buying up bonds belonging to the next victim economies of Italy and Spain as the market vultures are seen circulating there.  The ECB is also loaning money to eurozone banks.  Is this a plan that can save Europe?  I don’t think anyone believes it is.

In Greece they have announced plans to introduce a property tax (€2B) lay off another 20,000 state workers.  That property tax sounds a little like wha the household tax here will grow into.  Thus far their economy is predicted to contract by 5.3% this year.3

Again we return to the constant riff austerity everywhere and not a recovery in sight.  If you continue to make cuts where does the growth that is required come from?   If the dream of Europe fails will it be because they powers that be were not prepared to pay for this dream via stimulus packages that put people back to work, investing in the infrastructure and services of a country.
Instead the austerity measures being implemented all over the eurozone are all designed to placate markets, investors, and bondholders.  It also appears that the ECB and European leaders want the dream of a Europe, but want it cheap.  Someone better tell the ECB that there plan isn’t working and find out if anyone has ever managed to successfully placate a vulture.

(1) The Non-Scenic Route to the Place We’re Going Anyway – John Lancaster – London Review of Books Vol. 33 No. 17 – 8 September 2011 
(2) Eurozone: Debt Crisis Deepens on Greek Default Fears – Ralph Atkins – Frankfurt – Financial Times 22nd September 2011
(3) Across the Zone: Members states finances dissected – Kerin Hope – Greece – Financial Times 22nd September 2011