My recently published e-book and Pope Francis' speech at the European Parliament in Strasbourg

Dear readers,

I am happy to inform you of the recent publication of my e-book "From Washington Consensus to Economic Shock Therapy in Europe," available for purchase at Amazon.com. If you wish, you can take a look inside, read the contents page, the introduction, and the first part of chapter I here.

As if to underline the key messages of my book, Pope Francis gave a wonderful, eloquent, heartrending, and inspiring speech on Europe, adressed to the members of the European Parliament. Allow me to cite a few key sentences of this speech, sentences I found particularly poignant:   

"At the heart of this ambitious [European] project was confidence in man. Not so much man as citizen or as economic agent, but in man, in men and women, as persons endowed with transcendent dignity".....

...."To our dismay, we see technical and economic questions dominating political debate, to the detriment of any genuine concern for human beings. The human being risks being reduced to a mere cog in a machine that treats them as items of consumption to be exploited with the result that, as is so tragically apparent, whenever a human life no longer proves useful to the machine, it is discarded with few qualms as in the case of the terminally ill, the old or abandoned and uncared for, and the children who are killed before they are born".....

....."A Europe which is no longer open to the transcendent dimension of life is a Europe which risks slowly losing its own soul and that humanistic spirit which it yet loves and defends"......

....."The motto of the European Union is "united in diversity". But unity doesn't mean uniformity of political, economic, and cultural life, or of ways of thinking. In point of fact, all real unity draws from the rich diversities that make it up"....."It's no secret that a conception of unity seen as uniformity strikes at the vitality of the democratic system, weakening the rich, fruitful, and constructive interplay of organizations and political parties. This leads to the risk of living in a world of ideas, of mere words, of images, of sophistry, and to end up confusing the reality of democracy with a new political nominalism"....

...."Keeping democracy alive in Europe requires that we avoid the many globalizing trends that dilute reality"...."The true strength of our democracies, understood as expressions of the political will of the people, must not be allowed to collapse under the pressure of multinational interests which are not universal, which weaken them and turn them into uniform systems of economic power at the service of unseen empires".... 

...."I encourage you to work so that Europe rediscovers the best of itself"...."Europe urgently needs to recover its true features in order to grow, as its founders intended, in peace and harmony".....

....."Dear members of the European Parliament, the time has come to work together to build a Europe, a Europe which revolves not around the economy but around the sacred nature of the human person and around inalienable values"......"A Europe which looks to the heavens and pursues ideals; a Europe which cares for, which defends and which protects every man and woman; a Europe which moves on safe ground, a precious point of reference for all humanity."     

Closure of this blog and announcement of forthcoming publication

Dear readers,

in contrast to lucky Yanis Varoufakis who stopped posting because he spent his summer vacation on the Greek isles, I stopped posting for more mundane reasons: First, a long-planned trans-atlantic move has kept me away from the pulse of life and economic policymaking in Europe. And second, the economic crisis in the euro zone has calmed down and the focus now seems to be on provoking a war against Russia.  It seems Europeans never learn from history.....  

It's been two years since I started this blog in July 2012 when the euro zone was on the verge of collapse and the days of the common currency seemed numbered. Well, the euro has survived, but the economic and human costs are horrendously high due to the economically non-sensical and inhumane austerity policies I so often criticize in this blog. As a consequence, the euro zone now risks a lost decade (or more) of weak or non-existent economic growth, high unemployment and poverty, rising public debt levels, and a dangerous deflationary spiral.

protest posters in front of the ECB 

And yet, instead of implementing an immediate, Euro-zone wide investment program to create jobs for a lost generation of Europeans, European policy makers seem set on waisting valuable money and energy on an unnecessary conflict with Russia. As so often in the past two years, I feel like hitting my head against the wall...

That, however, is of no use to anybody.  Instead, I'd like to announce a forthcoming publication. It will be a sort of blog diary of the euro crisis from 2012 to 2014, with a selection of the most important posts put in a logical, coherent order. Look out for this publication between September and December 2014. The working title: "From Washington Consensus to Economic Shock Therapy in Europe: A Blog Diary of the Euro Crisis, 2012-2014."  

In the meantime, I may still - from time to time - give my opinion on actual economic policy issues and European economic policy making.  

So long, dear readers, and thanks for your loyal readership.   

European Elections 2014: Voting Recommendations for the Largest Voter Group in Germany

The largest voter group in Germany are women over 50, accounting for 17.4 million voters or 28.2% of all persons entitled to vote. This compares to 24.3% of men in that age group and 23.5% of women in the age group 18-50 (see the estimates in the press release of Germany's Federal Returning Officer - Bundeswahlleiter - of February 21, 2013). For the European elections I expect the figures to differ a bit, but not substantially.

The growing influence of mature voters on election results in Germany is compounded by the fact that electoral participation among women 50+ is above average, due in part to a higher political consciousness as the women of this cohort either witnessed or participated in the women's movement of the late 1960s and 1970s.

Voting recommendations for the European elections 2014:

1.) Based on the unquestionable statistical evidence, women over 50 need to realize that we have the power to significantly influence political decisions in Germany and - since Germany has one of the largest populations in the EU - in the European parliament. That is: if we work together, not against each other as is so often the case in Germany.

2.) Once we realize our power and decide to work together, we can change the EU and particularly the eurozone for the better, i.e. institute policies that benefit women and children instead of hurting us (like the austerity policies and structural 'reforms' designed to cut the very social services that we need); constrain the financial sector that benefits mostly (male) speculators; other measures to (re-)transform the European Union into the social, humane, and environmentally sustainable peace project it was meant to be.

3.) To work together, we ought to avoid parties that follow the old and tried tradition of replacing mature women with 20 and 30-somethings. The idea behind this (male) strategy is clear: combining experienced old men with inexperienced but mallable young women ensures that men preserve their power (and makes life more colorful as Joseph Ackerman used to say). This strategy also supports the interests of the financial sector as younger women can be used to attack the state-financed pension system older women depend upon, and thus help divert retirement savings to private financial firms.

4.) Avoid Germany's green party as they have become experts at the above-mentioned 'throw the old bitches out'-strategy and are increasingly dominated by austerity-promoting, business-friendly 'realos' from the rich Länder in South-Western Germany (the Swabian housewives and -men I so often complain about in this blog). 

5.) If you want more humane, socially fair and progressive economic policies in Europe, it's obvious you should NOT vote for Merkel's 'christian' democrats (CDU) nor for Bavaria's 'christian' social union (CSU). These two parties are anything but christian and mainly serve Big Business, not the average European citizen.

6.) If you want a significant change for the better in economic policy making, you need to assess whether the SPD and her sympatico leader Martin Schulz will have the 'cojones' to work against Big Business, if necessary, to stand up for the social, economic and democratic rights of the average European citizens or not.  You should also examine whether the SPD follows the strategy explained under point 3.).

7.) Please read this article before you vote, especially the last sentence: "Der Trick mit der Troika".

Other than that, I have no specific recommendations and wish you an enlightened voting decision at the ballot box next week. I know which party I will vote for, to send a loud and clear message to the nincompoops currently in power.

For my mother on Mother's Day 2014

“The supreme happiness of life is the conviction that we are loved.” 

(Victor Hugo)

It was the death of her mother that inspired Anna Jarvis to organize the first Mother's Day observances in 1908, in Jarvis' hometown of Grafton/West-Virginia and in Philadelphia where she lived. (see National Geographic news, "Mother's Day turns 100"): "For Jarvis it was a day where you'd go home to spend time with your mother and thank her for all that she did," ....."It wasn't to celebrate all mothers. It was to celebrate the best mother you've ever known—your mother—as a son or a daughter."

That's exactly how I would love to celebrate this Mother's Day: spend time with my mom - if I could. Unfortunately, no such chance. My mother has left the physical realm many years ago, yet I think of her nearly every day. I guess it's human nature to realize only after she's gone a mother's extraordinary love. I know I took my mother's love for granted too many times and would give anything if I had a chance to show her my appreciation and how much I miss her.

Since I am a firm believer in dimensions that humans do not yet understand (---> see Michio Kaku's "The Future of the Mind"), I hope she can somehow receive my thoughts, feelings, and other communications. This is for you, mom:

Source: Europa convention of the German green party, February 2014.

For readers who do not understand spoken german, here is the english translation of my speech:

"It was in July 2012 - the euro once again close to collapse - that my outrage about the dogmatic, incompetent and unjust economic policies in the euro zone drove me to found my economic blog WOMEN ECONOMISTS FOR A FAIR EUROPE. Since then, my blog has acquired a small but fast growing international readership.

Today, it is my concern for the disastrous economic, political and humanitarian consequences of these economic policies - especially the concern about a drift of the southern European periphery into a deflationary depression - which prompts me to seek a seat in the European Parliament.

Following the near destruction of our global financial system by the 'Masters of the Universe' 5 years ago, I hope that today you will give women economists a chance. I think it is imperative that competent, experienced and confident women keep a watchful eye on all the over-confident, unteachable 'Men in Black' in Europe, to prevent backroom decisions which adversely affect millions of women and children. A woman physicist holding regular court with senior representatives of the banking lobby is not enough. [editor's note: this is a swipe at chancellor Merkel]

Now, I am aware that some of you appreciate our chancellor; you might have even voted for her or her party in the last national election. In view of the alternative candidate available, I can almost understand this. In contrast to him [Peer Steinbrueck, chancellor candidate of the SPD - editor's note] chancellor Merkel is modest, unpretentious and has worked tirelessly for the interests of Germany (or at least for what she considers to be Germany's interests). For this, she deserves our respect. In addition, she and her team seem to have understood that no election can be won without the support of the largest voter group in Germany, namely women over 50 .

But I also have the impression that chancellor Merkel - and her finance minister with a typical German CV - lacks an appreciation of Europeans outside of Germany. Especially an appreciation and understanding of the way of life of South-Western Europeans is sorely missing. However, Europe does not only consist of Teutons. There may even be Teutons - and one is standing here in front of you - who highly appreciate the Mediterranean way of life as well as the continental European welfare state, and who do not want to see it destroyed by a brainless Anglo-American rat race. Yet, this is exactly what seems to be on chancellor Merkel's agenda.

Fact is that our Christian Democratic chancellor is responsible for the most unchristian, unjust and inhumane economic policies in Europe since the founding of the European Economic Community in 1957. The pro-cyclical austerity measures demanded by her government and imposed with the help of the troika are chiefly responsible for the collapse of the Greek, Portuguese, and Spanish economies, the soaring of unemployment rates to record highs and the existence of poverty, misery, hunger and despair in the Southern periphery of 'civilized' Europe.

What would have been [and still is - editor's note] necessary are structural adjustment programs for the over-indebted European banking sector, with strict rules for the orderly winding down of insolvent banks, as well as for the rapid repayment of bank bail-out costs to the states and the taxpayers that financed them. Instead, government spending is being slashed to ensure that sufficient funds are available to service the banks/ters' debt. The focus of the expenditure slashing is on state-funded social benefits, wages and pensions of people who have worked hard their entire lives and are not to blame for the European bank debt crisis.

This is not just a disgrace and a brazen raid by the financial elites, but also gross economic non-sense. Because the slashing of pensions, wages, and social security benefits by up to 40 % has stifled internal markets and set in motion a dangerous deflationary spiral which could lead the entire euro zone into the abyss. 

Even if real banking reform and the closure of zombie banks were to be carried out in the future, the damage to the real economy is already enormous. Due to the economic downturn, government debt has continued to rise. Each of the countries that carried out an austerity and reform program imposed by the troika or recommended by the EU today has a higher public debt ratio than before the austerity measures! Because the economy is down, investors stay away and new financial gaps open up which need to be filled by the European taxpayers. These failed, interest-led economic policies also cost German taxpayers dearly, and will become even more costly if we do not stop them.

Just as bad or even worse are the re-awakened anti-democratic and nationalist tendencies caused by the economic hardship of many Europeans. Not only in Greece and France, but also in Germany politicians are again fishing for votes from extreme right-wing, nationalist groups. If we do not re-direct economic policies NOW, this could end in political disaster and even war again . In order to avert another catastrophy in Europe, we must act now!"

Back in the market-conform Euro zone

Dear readers,

I am finally back in Europe after a long trip to prepare a trans-atlantic move. No, I'm not giving up on Europe, just seizing better opportunities elsewhere for lady economists.

Back in the euro zone, the atmosphere is definitely scary:

Three weeks before the European election on May 25, there is a deafening silence in Germany - much like the somniferous national election campaign of last year. The economic and humanitarian crisis affecting European citizens in Southern Europe and the very real threat of a deflationary spiral in the euro zone is either not discussed or smoothed over by the mainstream press, indoctrinating German voters with news about alleged economic recoveries, primary surpluses, improving growth rates, and broadly orchestrated PR on crisis countries' return to financial markets.  

A perfect example of such orchestrated PR was Greece's successful return to international bond markets, widely viewed as necessary to prevent an electoral victory sweep by the European left: First, the terrain was prepared with news of Greece's primary surplus, forecasted economic growth, and improved competitiveness (i.e. drastically lower labor costs). Second, Greek bankers went on international road shows in the US and UK for Greek bond placements. Well aware that Greece's failure to return to financial markets could mean a victory of the left as well as the immediate stop of market-friendly structural reforms in the euro zone, the markets played along: Greek bond issues were greeted with unprecedented investor interest and heavy oversubscriptions. And so it was for the first Greek sovereign bond issue since early 2010: notwithstanding macroeconomic fundamentals such as 27% unemployment (over 50% for the young), a 25% shrinkage in Greece's GDP vs. 2009 and a 175.7% debt-to-GDP-ratio (compared with 129.7% in 2009), the 5-yr, €3 billion bond issue by the Hellenic Republic was 8 (eight !) times oversubscribed. 

Third, Germany's chancellor Merkel made the final PR point so that everyone would understand. Days after Greece's successful return to international bond markets Merkel visited Greek prime minister Samaras to pat him on the back for his successful austerity and reform strategy. By then, the message was loud and clear to everyone: "Our strategy is working. If you, dear European voter, want Europe's recovery and success on financial markets to continue you need to vote for us, not the left."

And yet, this perfectly orchestrated PR-campaign didn't quite 'catch', at least not in the more critical blogger scene far away from Frankfurt am Mainstream. This financial blogger's comment, including a telling Goldman Sachs press notice, says it all:  "Greek bond final term sheet..." See also MacroPolis "...The perils of ignoring macro-economic fundamentals".

If Europe's VSPs think European voters are idiots who happily continue to suffer and then turn the other cheek, they should not be offended if Europe's extreme right has a landslide victory on May 25, then dissolves the European parliament and starts the Third World War in Ukraine.

Yes, I think the situation is that serious. And no, I will not stay and watch.

Lady economist traveling

Dear loyal readers around the world,

I am currently on a long business trip, so posting will be sporadic.

Hope, I will be forgiven. Will be back soon.

Euro zone recovery ? If at all, highly imbalanced and with a lot of room for improvement

Europeans queuing for work.

Source:  Frankfurter Rundschau, March 2, 2014.

It is understandable that interested parties[1] aim to convince European voters that the euro zone is recovering from the crisis and that the structural reforms imposed on the periphery are showing results, namely lower risk spreads on euro zone government bonds, lower budget and trade account deficits, and blossoming economic growth.

While the lowering of budget and trade account deficits is mainly due to the severe economic austerity measures in the euro zone periphery, and +0.5% growth in the euro zone as a whole can hardly be called a success, it is true that risk spreads and yields on euro zone government bonds have normalized --> see this Bloomberg article of February 28, 2014, including yield chart for Greece: "Greek yields fall below 7% as crisis source regains confidence". There is no doubt, euro zone financial markets have calmed after ECB president Mario Draghi's historic proclamation "within our mandate, the ECB is ready to do whatever it takes to preserve the euro" of July 2012. Recent euro zone bond sales have shown that there seems to be no stopping the appetite of yield-hungry investors as long as ECB accommodation remains favorable. 

The other side of the euro story, however, conveniently remains unmentioned. Fortunately, there are still critical economists who look under the superficial veneer of the euro zone. See, for example, Yanis Varoufakis' recent economic update on Greece: "What you should know about Greece's present state of affairs." Or the Frankfurter Rundschau's thorough review of economic and social developments in Italy, Greece, Portugal and Spain: "Union der Armen." Or my own assessment of the economic impact of hundreds of €billions of taxpayer funds spent on bail-out and 'rescue' measures in the euro zone:

- Sovereign defaults have been avoided and zombie banks full of worthless assets have been saved.

- The economies of the euro zone periphery contracted severely, in Greece by 25% vs. 2009.

- Unemployment reached record levels in the periphery, among the under-25s over 50%.

- Public debt ratios are higher than 2009 as a consequence of the economic collapse in the periphery.

- Wages, pensions, and social security payments have been significantly cut, in Greece by 40%.  

- Poverty, misery, and hunger in the middle of wealthy Europe !

Conclusion: the euro and zombie banks have been saved, but the patient (the real economy and its people) is nearly dead. The pro-cyclical austerity policies combined with the wage-depressing structural competitiveness reforms have caused tremendous damage to the real economy and the social fabric of the euro zone periphery, and the damage is spreading to the core. Europe risks a lost decade with weak economic activity, high unemployment and rising poverty with dangerous deflationary tendencies, increasing the real value of public debt.  

Bravo, Merkel & Co. Great job !
No, in my monopoly game, you will NOT be able to get out of jail, collect €4000, and continue on.
I hope, European voters agree with me and show you so at the ballot box in May.
______________________

[1] namely those economic policy makers responsible for the euro zone 'rescue' measures and who are trying to win MEP seats in the European elections in May 2014. 

Germany's Progressives are fighting while Latin Europe suffers and Big Business triumphs

For those who had hoped that Europe's progressives will, for once, work together to defeat conservative and ultra-right parties during the 2014 European election campaign so as to end the misery in the Southern European periphery, the recent attacks by leading members of Germany's green party against Sahra Wagenknecht (co-chair of Germany's LINKE) is a huge disappointment.

But first the background to all the fuss:

On February 13, Zeit Online published an interview with Sahra Wagenknecht in which she states the obvious, namely that the Euro system - as it is now - does not function very well but divides Europe. Following that, a number of suggestive questions by Zeit Online meant to make the reader think that Ms. Wagenknecht agrees with her partner Oscar Lafontaine who favors a replacement of the euro with a new European currency system. 

The Greens responded by Blitz-attack: on the same day, Simone Peters, co-chair of the Green party, accused Wagenknecht of nationalism and populism on the same level as the AfD (Alternative für Deutschland), the new ultra-right party in Germany.  Two days later, Sven Giegold, MEP co-leader of the German greens' European election campaign, challenged Ms. Wagenknecht to support progressive economic policies, insinuating that she was instead following down the path of the "nationalist grave diggers of the euro" (his words). Here is a very good rebuttal to Giegold's non-sense: "Sven Giegold und die grüne Verdrängungsmaschine".
   

The attacks from the Greens came on the heel of a scandalously rude and disrespectful interview of Ms. Wagenknecht by a talk-show moderator on German public TV who attempted to convince the audience that Wagenknecht was out to destroy the euro. Even the mainstream Spiegel Online thought that was too much, opining that this interview was "the expression of an aggressive conformism that pervades the entire ZDF". (ZDF, the second German public TV station is financed by tax payers but heavily influenced by Big Business with key supporters on Germany's public media board).

Considering the above-mentioned events, an interest-led PR campaign against the LINKE doesn't seem far-fetched. Question is: are the Greens, as the direct competitior of the LINKE, being instrumentalized by Big Business or are they preparing for a future coalition with Merkel's pro-Big Business CDU ? Or are they just desperate in view of the negative press coverage they had recently ? ---> see "Europa-Parteitag: Pragmatisch, grün, langweilig",  "Grosses Gerangel um Spitzenpositionen", heute-show: Lutz van der Horst im Einsatz gegen das Charisma-Defizit der Grünen:

Whatever may be the reason for the greens' aggressive behavior against the LINKE, striking is the complete lack of humor among the German greens displayed in the video, with the sole exception of Claudia Roth. But what's really deadly is the desperate but futile attempt of Germany's leading greens to appear cool - sad ! 

Meanwhile, Big Business and Big Finance are living it up, enjoying the fruits of their successful 'divide and rule' strategy among Europe's (and America's) progressives: see "Troika consultancies: a multi-billion business beyond scrutiny" and "I crashed a Wall Street Secret Society".

Is the Intellectual Edifice of the Competitiveness Doctrine crumbling as well ?

Following the crumbling of "the intellectual edifice of austerity economics" (see also "Austerity....in Europe - economic incompetence or indoctrination ?") and the waning political support of austerity measures in the euro zone (see "Public Opinion in Germany turning broadly against Austerity"), the intellectual edifice of the Anglo-Germanic competitiveness doctrine (see also here) seems to be wasting away as well.

A recent World Bank contradicts the competitiveness doctrine with evidence that "changes in competitiveness, measured by real exchange rates or by unit labour costs, have not been strongly associated with external imbalances in the Eurozone periphery" (see the table below from the World Bank study "Tracking the causes of Eurozone external imbalances: new evidence", Sanchez and Varoudakis, February 2014). Instead, Sanchez and Varoudakis' analysis corroborates that:

"....the growing external imbalances in the Eurozone periphery were mainly driven by a domestic demand boom triggered by greater financial integration and the resulting surge in credit and intra-regional capital flows.".... "Growth and real interest rates have played a more important role in current-account dynamics in the Eurozone periphery than in the core."

Percentage of variation in current account explained by column variable

 (panel VAR estimated over 1996–2011)

Source: World Bank study, Sanchez and Varoudakis, February 2014, Table 1.

Savings–investment imbalances and competitiveness gaps 

in the Eurozone core and periphery (1990–2011)

Source: World Bank study, Sanchez and Varoudakis, February 2014, Figure 2.

Translating from economeze to understandable english: Sanchez and Varoudakis found that the introduction of the euro and the consequential disappearance of exchange rate risk in the euro zone led to a surge of capital flows from the capital-rich core to the periphery. This capital surge in turn led to increases in economic growth, unit labor costs, and prices; thus, to an increase in inflation rates, a decline in real interest rates, and an appreciation of the real exchange rates of the euro zone periphery countries vs. the core. As a logical economic consequence of these developments, the current account balances of the euro zone periphery countries registered growing deficits while current accounts in the euro zone core showed rising surpluses, thus generating growing imbalances in the euro zone as a whole.

Given these developments, the often proclaimed loss of competitiveness due to higher unit labor costs is an endogenous explanatory factor for the problems in the euro zone periphery, i.e. a factor derived from other, more significant, economic developments as described above. Hence, the policy recommendations to correct the problems in the euro zone periphery should be directed at the economic factor(s) that caused the problems, in this case mainly the capital surge from the euro zone core.

Sanchez and Varoudakis hold similar views, albeit framed in rather 'diplomatic' language. They conclude that "Tighter regulation of credit markets, including through macroprudential measures, might .... be needed to thwart excess leverage and concentration of lending in investments prone to speculative bubbles."

With respect to the ill-advised, deflationary competitiveness measures favored by Merkel & Co. (i.e. cuts in wage and non-wage labor costs to reduce unit labor costs = internal devaluation), they suggest that "Internal devaluation may have certainly contributed to a contraction of domestic demand....an unintended consequence of this correction has been a potentially large redistribution of income at the expense of wage earners in the periphery." 

Finally, Sanchez and Varoudakis recommend a very different reform agenda to remedy external balances, prevent future crises, and attain medium-term economic growth:

"Structural reforms that improve the business environment and investments that enhance productivity hold the key to external rebalancing and stronger medium-term growth (Gill and Raiser 2012). This broader structural reform agenda, as well as complementary, productivity-enhancing public investments in physical and human capital, should not be lost from sight ...."

Quite in line with my own policy recommendations, with the exception of the well-worn phrase "structural reforms that improve the business environment" (code for wage-depressing, deflationary labor market liberalization).

Economic Policy Recommendations to prevent a Lost Decade in the Euro Zone

As a follow-up to my summary of the first Troika impact report, here are my economic policy recommendations to prevent a lost decade of deflation, depression, rising unemployment and poverty in the euro zone:

First: implement an immediate STOP of the deflationary austerity and competitiveness policies, at least until all the results of the Troika investigations have been reviewed and analyzed. After that, a democratic decision should be taken on how to proceed.

Second: for the short- to medium term, I recommend a macroeconomic strategy change toward active, job-creating economic policies with, for example, sound investments in renewable energy projects to reduce the costs of oil imports into the euro zone, and the massive employment of the most valuable renewable energy of the continent, namely our people, in the social service sector to benefit fellow Europeans, native animals, and the protection of the environment.

The financing of such welfare-enhancing investments and services should be derived NOT from new debt, but from the revenues of an adequately designed financial transactions tax as well as bank fees for the speedy reimbursement of tax payer-financed European bank bail-outs amounting to hundreds of billions of Euros (see the estimates by Sven Giegold at the bottom of his article). According to IMF data, only 15%-40% of these funds have so far been returned to Europe's taxpayers. The money is desperately needed NOW, not later, to repair the damage caused by the misguided austerity and competitiveness policies in the euro zone. If banks have the money to pay million-Euro bank salaries and boni again, they also have the funds to reimburse Europe's taxpayers !

Currently, we are saving at the wrong end and are rescuing the wrong ones, namely zombie banks that would not be able to survive without taxpayer support. That is why I also recommend:

Third, structural adjustment programs for Europe's banks, with strict conditionality for the orderly closure of zombie banks, and a restructuring of the remaining banks along the lines of the 14-point reform and adjustment program noted in my post of August 29, 2012 and the forthcoming study by Sven Giegold of the European Greens: “Banking structural reform; a Green perspective”. The conditionality of the structural adjustment programs should be regularly supervized and inspected by competent and democratically legitimized inspectors. 

First impact report on the Troika's operations

Last October, I reported on Sven Giegold's initiative for an investigation of the Troika's operations by the European Parliament's powerful Economic and Monetary Affairs Committee (see my post of October 31, 2013: "Halloween in Europe...."). 

Well, the committee members didn't loose any time: they immediately sent out questionnaires to various stakeholders, including representatives of labor unions and high government officials of countries that signed reform programs designed and supervized by the Troika (EU commission, ECB and IMF). Throughout the month of January, EP delegations visited Portugal, Cyprus, Ireland, and Greece; meetings took place between national and EP delegates; and parliamentary hearings were held with key Troika officials, including economics commissioner Olli Rehn, former ECB-chief Trichet, and ESM-chief Regling (see "Auswertung der Troika-Arbeit: Anhörungen und Delegations-Besuche).

On January 28, the first impact report of the Troika's operations was presented, based on a thorough analysis of replies to questionnaires sent to affiliates of the European Trade Union Confederation (ETUC) in Cyprus, Greece, Ireland, and Portugal. The findings are devastating:

The Troika's policies of fiscal consolidation are overly ambitious and poorly designed, with little emphasis on the revenue side. The fiscal consolidation measures, combined with a dismantling of systems of social protection, and the complete lack of counterbalancing measures to promote growth and employment have severely damaged domestic demand and triggered a deep recession. 

The Troika's structural competitiveness reforms promote labor market deregulation, dismantle wage bargaining systems, abolish key workers' rights and enforce cuts in minimum wages, public sector salaries and pensions, often under the threat of ceasing loan instalments (e.g. in Greece).

Economic impact: The deep recession caused by the Troika's fiscal austerity measures has shrunk the economy, worsened public finances and increased public debt levels. It has also led to a fall in or a complete collapse of investment activity, despite severe wage cuts. Troika demands for privatizations of public assets at fire sale prices are bound to lead to private oligopolies.

Social impact: Skilled workers and qualified young people are leaving the crisis countries while the remaining population suffers record unemployment and soaring poverty, rendering a significant part of the population destitute. "There is a tremendous rise in indebted households, with the unemployed and homeless being forced to turn to soup kitchens and food distribution." (e.g. Greece) Inequality is widening, with rising unemployment and the dismantling of social protection measures the main drivers. 

Political impact: The imposition of reform policies by unelected Troika officials are putting democracy under heavy strain. Citizens feel they are being overtaken by rules that are external to them and not in their or their country's best interest but "instead serve to uphold the 'sanctity of debt' at all cost" to spare the banking systems of creditor nations. Only 15% of Southern European citizens trust their countries' government, between 19% (Greece) and 43% (Italy) approve of the EU leadership, and less than 30% maintain their faith in democracy.

Legal impact: The report makes it clear that key provisions of the European Treaty, such as "the obligation of the European Union to recognise and promote social dialogue and the autonomy of social partners (Article 152 TFEU)", have not been respected at all. Instead, the European Commissiion has actively assisted in a breach of these provisions, going "against major principles of the European Social Acquis". The report concludes: "Fundamental principles and key objectives of the European Treaty are there to be respected at all times. .... the failure of the Troika programmes to deliver economic and social results shows that the respect of Treaty provisions is a necessary guarantee to design policies that actually work."

No need to say anymore. This report speeks eloquently for itself !

Adé au savoir-vivre francais ?

"It is evil crystallized in unjust social structures..."

..."In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile....is defenseless before the interests of a deified market..."

(Pope Francis, Evangelii Gaudium, paras 59 and 56)

In October of last year, I reported about the evil empire's renewed attack on Germany in an attempt to install Agenda 2020. To prevent the negative connotation to the much maligned Agenda 2010, they named the new agenda "Chance 2020". Yet, it's still the same old supply-side agenda that clearly caters to the global investor and employer community (currently assembled in Davos ---> more on this in my next post), with a focus on reductions of labor and labor-related costs.

Last week, following a massive PR campaign against France (see here, here and here), including a (misre-) presentation by ECB president Draghi (see here) and a downgrade of the country's credit rating by Standard & Poors (the rating company that assigned AAA-ratings to toxic asset portfolios just before the Great Financial Crash of 2008), France's president Francois Hollande finally surrendered. During a press conference at the Elysée palace on January 14, president Hollande announced several measures that will reduce labor costs and labor-related costs for employers to improve France's competitiveness. Framed as a "responsibility pact", employers are expected to create jobs for the young, the elderly, and other target groups in return for lower labor charges, including:

- a  €30 billion cut in social security charges paid by firms for family welfare, starting in 2014;
- another €50 billion cut in unspecified public spending in 2015-2017, of which at least €18 billion are to be cut in 2015, €18 billion in 2016 and €14 billion in 2017.

With the exception of the job creation aspect, the announced measures represent nothing else than the synthetic (competitive) devaluation approach pioneered by Angela Merkel in 2007, "combining an increase in VAT from 16% to 19% with a cut in employers' social security contributions from 6.5% to 4.2%....designed to lower unit labor costs, the standard measure of competitiveness, and thus increase exports." (see my post of February 2013 in which I mentioned that a similar strategy was being planned in France: "And what about Germany's synthetic competitive devaluation strategy ?") 

The post explains what I mean by 'synthetic' devaluation:

"Just as financial instruments can synthetically replicate risk exposures and generate similar returns as other financial instruments without the need for real assets, economic policies can be designed in such a way as to attain the same effect as a competitive currency devaluation without the need to change nominal currency values. For example, a combination of higher value added taxes (VAT) on consumer goods and a cut in payroll taxes or a payroll tax subsidy lowers unit labor costs and lowers export prices as export goods are exempt from VAT. This fiscal devaluation approach has recently been advocated by Harvard economist Gita Gopinath and colleagues as a response to the loss of competitiveness in the eurozone (see Gopinath et al., 2011: "Fiscal Devaluations") and is now being planned in France to revive the country's competitive edge. Keeping nominal exchange rates unchanged, the recommended combination of policies acts as an effective export subsidy and thus leads to the same outcomes as a nominal currency devaluation, namely an increase in exports". 

In Germany, the combination of fiscal devaluation with the labor cost-lowering Agenda 2010 measures were so successful that the country went from a trade deficit in the early 1990s (as a result of the economic boom following reunification) to huge export surpluses in nearly every year since 2000. However, what is not mentioned by Germany's competitiveness gurus is the fact that the synthetic devaluation approach also resulted in huge current account imbalances within the eurozone and thus has substantially contributed to the euro crisis.

If France employs a similar strategy now, it will not only increase the eurozone's trade surplus and thus subtract from desperately needed global demand but, through its labor cost-lowering policies, it will provide another downward thrust toward the dangerous deflationary spiral already at work in the Southern periphery of the eurozone. Using fears of failing competitiveness and high public debt levels to advance an ideological agenda, the evil empire is playing a dangerous game indeed.

The fight against Germany's economic boneheads, round #4

Ever since the onset of the Global Financial Crisis of 2008, the world has had to contend with German economic policymakers who refuse to go along with the global consensus on the need for economic stimulus and an expansion of aggregate demand - to prevent a collapse of the world economy in 2008, and a tailspin into a deflationary depression in Europe today. Since Germany is not an island but by far the largest economy in Europe, one would think that German policy makers realize their special strategic role in the crisis, not only for Europe but indeed for the global economy. But no, Germany's economic Ayatollahs prefer to show off their boneheads.   

In 2008 (round #1), it took a New York Times article of none other than nobel prize winning economist Paul Krugman (and probably numerous diplomatic interventions by high-level foreign officials) to convince then finance minister Steinbrueck of the need for coordinated fiscal stimulus in Europe, with Germany contributing a significant chunk.

So far, Steinbrueck had steadfastly refused to give in to any demands for fiscal spending. Incensed by this uncooperative attitude, Krugman called Germany's economic policy makers a bunch of boneheads (see citation below). 

"And if Germany prevents an effective European response, this adds significantly to the severity of the global downturn. In short, there’s a huge multiplier effect at work; unfortunately, what it’s doing is multiplying the impact of the current German government’s boneheadedness." 

Steinbrück finally came around.

Round #2 occurred in July 2012 as Germany's finance minister Schäuble was close to pushing Greece out of the euro zone. This time, it took the urgent and concentrated intervention of US finance minister Geithner, France's newly elected president Hollande, former British prime minister Tony Blair and, so rumor has it, even some unequivocal threats from the Chinese to throw their significant holdings of euro-denominated notes and bonds on the market to convince German VSPs that a Grexit would not be in Germany's interest.  

Round #3 was the fight against austerity in the euro zone. It took a concerted effort of economic researchers who destroyed the intellectual edifice of austerity economics (see also the IMF's World Economic Outlook of October 2012), diplomatic cajoling by IMF Managing Director Christine Lagarde, and massive pan-European pressure by civil society organizations, trade unions, and NGOs to convince Germany's economic policy makers of the need to slow down the pace of austerity (see my post of June 2, 2013: "Less Austerity in return for more Competitiveness - a Pyrrhic victory for Europeans").

Round #4 was called in October 2013 and continued in early Januar 2014. This time, it's about the damaging economic effects of Germany's record current account surpluses (7% of GDP in 2012). In a US treasury report of October 30, 2013, it was correctly pointed out that "Germany’s anemic pace of domestic demand growth and dependence on exports have hampered rebalancing." .....“The net result has been a deflationary bias for the euro area, as well as for the world economy."(page 25) During a January 8 meeting with finance minister Schäuble, US finance minister Jack Lew again criticized the record German current account surplus and rightly asked for more efforts to strengthen Germany's domestic economy through higher wages and investments so as to boost not only domestic demand but demand for imports from other countries. That should help reduce the economic imbalances and the threat of deflation in the euro zone. Finance minister Schäuble's reaction remained, as always, intransigent.

Meanwhile, following reports that core inflation in the euro zone dropped to 0.7%, German economics professor Kirchhof claims that German savers have a constitutional right for higher interest rates ! Duh?

What will it take this time to make Germany's economic boneheads see the light ? A full-blown deflationary depression in the euro zone ?

Three remarkable events that may influence European elections

Before the campaign for the 2014 European elections begins for real, I'd like to share with you, dear readers, three remarkable events that occurred during the final weeks of the past year: 

First, according to an expertise prepared by Andreas Fischer-Lescano, Professor for European Law at the University of Bremen, the austerity measures imposed by the Troika (EU commission, ECB and IMF) constitute a breach of human rights, other constitutional rights and the EU social charta. The evidence collected will be used for legal action against the Troika initiated by Austrian and European workers organizations. 

Fischer-Lescano argues that the Troika of EU, ECB and IMF has been operating outside of European laws and without consulting the social partners or the European parliament. The EU commission has been active in policy areas for which it does not have a mandate, e.g. in wage setting. The Troika's wage-, pension-, and social-benefit compressing policies inflict particular harm on the human rights of the most vulnerable social groups - children, women, migrants - and have created abject poverty and desperation for an entire generation.

Together with the investigation of Troika activities by the European parliament, the legal action against constitutional and human rights abuses by the Troika is bound to slow down, if not stop, further austerity policies in the euro zone.  And that is excellent news for all the people who continue to suffer under the misanthropic austerity policies imposed on Southern Europeans. 

Second, two days before Christmas, the Frankfurter Allgemeine Zeitung (FAZ) which is the mouthpiece of the German bank(st)er elite published an article that seems genuinely critical of banks, entitled "How we learned to hate banks." The FAZ authors Hahn and von Petersdorff correctly assess that systemic banks still risk the well-being of economies around the world because politicians have only treated the symptoms of the Great Financial Crisis, not the root cause, namely the lack of equity capital. Five years after the crisis, banks still have too little equity to weather a new financial crisis so that the tax payers would have to bail them out again. Hahn and von Petersdorff even agree with the leftist critics of the banks who have long argued that the business model of banks is to privatize profits and socialize losses. This model works only as long as systemic banks can threaten their governments with the collapse of the financial system.

And so, Hahn und von Petersdorff correctly conclude that tax payers have a right not to be importuned by the risks of the banks' business models and that, therefore, banks need to ensure that they have sufficient equity capital to weather a crisis. A recent book by scientists Admati and Hellwig suggests equity quotas of between 25% and 40% which were not unusual in the 19th century when the economy boomed. And what if the banks refuse to raise their equity capital to that level ? Then, Hahn und von Petersdorff say, we have to force them ! Force may be a dirty word for a liberal newspaper, but the word bail-out is much, much dirtier.

I say: way to go, boys !

Third but most important is a bomb that exploded in the Vatican: the Evangelii Gaudium.

To be honest with you, before Pope Francis came along, my opinions of popes fluctuated between disregard, disrespect, ridicule (with respect to the old men's luxurious clothing), and anger about their 'love' of young altar boys and the old men's general audacity of telling young women what to do. 

Then comes Pope Francis: a highly extroverted man who loves to 'bathe' in crowds of 'normal' people, always ready to share a warm smile and some kind words. A man who does not need the luxury trappings and chaffeured limousines of a pope but who prefers to wear normal shoes and drives a small car chaffeured by himself. A man who took the name Francis upon his election as Pope in memory of his beloved Saint Francis of Assisi who abandoned a life of luxury for a life devoted to christianity.

These symbolic gestures were sufficient to earn my respect and admiration for Pope Francis, especially when compared to some of his ridiculous peers in the catholic church, e.g. the German bishop Tebartz-Van-Elst who spent millions of Euros on his Limburg bishop residence, including a $20,000 bathtub with golden faucets, while cutting the salaries of employees.

But the sincerety of Pope Francis' Evangelii Gaudium and the courage to have it published by the Vatican press completely won me over. I, a proud Lutheran, am now officially a fan of Pope Francesco ! He is a very special human being, perhaps an angel, who was sent to us just in the nick of time.... Finally someone who, by the power of his position, can reach hundreds of millions of people on this planet, ask the right questions and tell the unadorned truth in defense of those who don't have a lobby in our globalized economy (see his Evangelii Gaudium, paras 53-61):

"How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points ?"...."Can we continue to stand by when food is thrown away while people are starving ?".... "Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless." (para 53)

...."In this context, some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power in the sacralized workings of the prevailing economic system." (para 54, boldface by author)

...."The worship of the ancient golden calf (cf. Ex 32:1-35) has returned in a new and ruthless guise in the idolatry of money and the dictatorship of an impersonal economy lacking a truly human purpose. The worldwide crisis affecting finance and the economy lays bare their imbalances and, above all, their lack of real concern for human beings...." (para 55)

...."This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation. Consequently, they reject the right of states, charged with vigilance for the common good, to exercise any form of control. A new tyranny is thus born"....."The thirst for power and possessions knows no limits. in this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile, like the environment, is defenseless before the interests of a deified market.... (para 56)

....."Behind this attitude lurks a rejection of ethics and a rejection of God."...."Ethics - a non-ideological ethics - would make it possible to bring about balance and a more humane social order." (para 57) ...."I exhort you [financial experts and political leaders] to generous solidarity and to the return of economics and finance to an ethical approach which favours human beings." (58)

...."Just as goodness tends to spread, the toleration of evil, which is injustice, tends to expand its baneful influence and quietly to undermine any political and social system, no matter how solid it may appear."...."It is evil crystallized in unjust social structures, which cannot be the basis of hope for a better future. We are far from the so-called "end of history", since the conditions for a sustainable and peaceful development have not yet been adequately articulated and realized." (59)