As French and Greek voters make their feeling about spending cuts loud and clear, we ask ourselves: why has there been such a strong swing to anti-austerity/pro-growth, how does this threaten the survival of the euro and is a Greek default still possible? The deepening slump has dampened deficit reduction, the fiscal treaty hangs in the balance and patience is wearing thin. Crucially, according to voters and investors, time is running out.
Growth vs. Austerity: Deepening Slump Dampening Deficit Reduction
Francois Hollande's victory in the French elections marks a significant change of focus in European politics. In contrast to the rhetoric delivered up to this point, Hollande wants emphasis of policy to be on growth instead of austerity. Why does he want this? Because the situation is deteriorating. Unless a country grows, their debt burden, as a percentage of a decreasing national output, grows and is therefore harder to manage. As iterated by French Socialist lawmaker Arnaud Montebourg, in an interview with BFMTV, "Austerity is everywhere and it's a complete shipwreck".
Portugal and Spain are prime examples. While the Portuguese economy is expected to contract by 3.3% this year, the deepening slump is dampening deficit reduction. In fact, the deficit almost tripled in the first couple of months of this year alone. Spain, similarly, is struggling with a deteriorating debt situation. As almost 1 in 4 are without jobs, unemployment is boosting defaults. Bad loan ratios have reached a 17-year high.
Survival of the Euro Threatened
However, such a drastic change of attitude could damage the Franco-German Alliance, political progress and the very survival of the euro. This is because for Hollande to promote growth, he is threatening the fiscal treaty, perceived as crucial for keeping the euro together in its current form. The Treaty would create closer consolidation within the European union. Handing over authority for National Budgets to a Supra-National entity could ensure the various moving parts of the region interact better as a whole. However, Hollande disagrees with the primary focus on debt and deficit limits, without any pro-growth measures.
Whilst the German Finance Minister Wolfgang Schaeuble is ready to discuss initiatives to boost economic growth, Merkel has said she will not renegotiate the pact. As her spokesperson asserted, it "has already been signed by 25 out of 27 EU countries." Instead the likelihood may be a growth pact attached to the fiscal pact. Nevertheless, the problems don't end there. Firstly, Hollande will have his work cut out for him in an economy that is barely growing, with jobless claims at their highest in 12 years and a rising debt load that keeps France vulnerable. Secondly, can both sides agree what they mean by growth?
Growth by any other name...
France and Germany disagree strongly on how to achieve growth. Merkel maintains it is through structural reforms -- making it easier to fire workers, which would encourage employers to hire, certainly a key aim for the Italian government. However, Hollande is hesitant and instead wants growth via infrastructure spending. But Germany won't agree to spending funded by borrowing -- exactly opposite to their deficit reduction targets. Therefore, again although rhetoric can be applauded, practical plans remain elusive.
A Greece Default Still Possible
Uncertainty continues to be a key challenge for Greece as voters in a similar move to the French, overwhelmingly rejected mainstream candidates supporting spending cuts. Crucially, these cuts were aimed at securing bailouts and avoiding a default. Instead, 70% of voters supported parties that promised to tear up the bailout and attempts may be made to negotiate a gradual ''disengagement'' from the harshest austerity measures of Greece's €130 billion ($168 billion) bailout. This keeps the possibility of a Greek default firmly in the picture and until a coalition is formed, a new election next month is possible.
Is time running out?
Will there be enough time for political leaders to regain credibility and encourage Eurozone growth? As confidence wanes, borrowing costs rise and debt burdens risk becoming unsustainable. Worryingly, therefore, patience is running thin. Echoing Margaret Thatcher's thoughts on a unified Europe as "the vanity of intellectuals, an inevitable failure: only the scale of final damage is in doubt," the German paper Die Welt wrote after the French and Greek elections: "In the end the results are proof that Europe doesn't work."
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Rajan Menon: Whither Eurozone Austerity?
No one needs go hungry, homeless without education of health care, yet the same old Burke conservative concepts of rule by the rich dominate the modern conservatives ideology.
Tax the rich, support the citizens safety net.
Let automation and tech free us all.
Ireland says NO.
This global credit crisis affects everyone, but not everyone alike, and just the fear of contagion sends a lot of voters to their national refuge. No forgiveness for the sins of others, even if the differences are less than one may think.
The Netherlands are itself a good example: lack of financial soundness is called something typical of the Greeks. But suddenly the 3% standard was shown to be far exceeded, and its mortgagebubble as a potential source of trouble, was not missed in Brussels.
Precisely perpendicular to the call for 'less Europe' of the populists is the call for 'more Europe' of the governing elite. More EU please!
The core problem is that some slippage in the past, because of "more Europe", caused the "wrong Europe". 20 years of neoliberalism turned Europe into a limitless market. Pointing to globalization that would force other world powers to keep pace, EU pressure saw to it many certainties were abolished.
Wage liberalization may seem fun for the CEO, who now can measure his salary with Americans, but not for the mechanic, who can now measure his salary with Albanians. That is why in France and the Netherlands the constitutional referendum popped. Europe is in many eyes no more social security, but rather a social threat.
There you go, folks, Hartz IV for Europe.
Now European inflation is not above 2% (which would be disastrous, not because of the inflation itself but because of the interest rate hikes the ECB would automatically decree), but many of the present problems are nonetheless due to the ECB's obsession with keeping it that low. There are obviously disparities within the eurozone, and to have an average inflation of say 1%, that means some countries will have higher inflation and others lower inflation or even deflation. And this is indeed happening. Deflation is what is driving Greek debt so high, despite the austerity measures.
If the ECB does not change course rapidly the euro is doomed. I live in France and I think France should also leave the euro if the ECB statute and policies are not modified. Inflation angst - when inflation is close to zero, and below zero in certain countries - is an obsession, not a valid policy.
And when they tear up their international financial agreements, they can throw away any chances of future international investment. And then what? Is Greece going to remain afloat on olive and feta cheese exports? Let them tear up their international agreements, I say. The Greek economy will collapse and they will be a harsh reminder of what socialism leads to.
for Cakes, Coffee, and long windy speeches.
Huggs Becky
Is it not true?
All of The Banksters - their Agents - acolytes - Political Elites - are all variously -solely responsible for the various post 2007 financial crisis.
Is it not true?.
The Hoi Poloi (L) - the great unwashed - greater public have no obligation so what ever to assume any responsibility - accommodation of such criminal - fraud inspired fiction debt(s) ?
Is it not true?
THE VATICAN BANK,THE BANK OF ENGLAND - THE UNITED STATES FEDERAL RESERVE BANK, all of their various daughter banks, agents and acolytes with THE IMF - INTERNATIONAL MONETARY FUND and TWB - THE WORD BANK Bank are all actually now part of the problem(s) - not part of the solution(s)?
Is it not true?
A far by far better way forward for all nations is to default all the spurious Fiat - Legal Tender Monetary Currency inspired debts and ficticious instruments of debt - the perpetual indebted legal tender paper monetary instruments all.And create an entirely new debt free monetary system?
References:
< www.Money Masters.com >
< www.Zeit Giest Addendum II.com - Money Mechanics
E&OE
Whatever path EU politicians choose they cannot remove the massive debt which will weigh on the EU for decades and savagely reduce investment possibilities. EU integration will not make the EU into a world innovation centre for new products and services wanted by the world.
The EU will become an economic backwater as high growth around the Pacific Rim means the EU will not be on the main trade routes.
Correct answer is both. Borrowing from quantum physics, whole range of creative solutions to European and global financial + economic problems exist, but would require "quantum jumps" in mutual faith and resolution of "wave versus particle ambiguities" in paradigm shifts in perceptions and attitudes to implement them. Deadlock is basically exacerbated by inflexibility of perceptions of problems of different segments of society, and their corresponding intransigence in formulating creative solutions.
In essence, there're two conflicting spirals. Bankers + money ownership class of society are legitimately scared stiff of ballooning debtloads spiralling out of control into defaults and hyperinflation. Correspondingly, workingclass majority segments of society + global community are being strangulated by austerity tightening and inversion of capital investments into monstrous debt nooses to hang involuntarily unemployed masses. Both kinds of spirals can get out of control with massive destructive consequences and revolutionary convulsions. Two classes need to meet in the middle.
In basic accounting, there's class of commonly used debt+investment instruments -- convertible bonds and debentures. Essentially, the capitalist class invests shortterm ownership in job creation projects, whose longterm economic outputs + profits are contractually convertible into ordinary loans+interests to be repaid to disengage from ownership. At societal and international levels, they can be structured creatively into "limited joint ventures". If they apply to massive future-oriented infrastructure projects in green technologies and renewable energy conversion, nobody loses and everybody wins. Simple problem resolution, yet profoundly true and uplifting.