Thanks for visiting this blog, created in July 2012 out of great concern for the fate of the €uro currency area, once again on the verge of collapse due to the economically ill-advised and heartless austerity policies imposed on Greece, Spain and other heavily-indebted €uro area countries by a christian democratic German chancellor impressed with the budgeting skills of Schwabian housewives. Meant to reduce the public debt and put the countries back on a path to economic growth, these macro-economically idiotic policies are doing anything but cause "pointless misery" as Paul Krugman so aptly describes it (Bloomberg, July 23-29, 2012).

Instead of reducing public debt, the austerity measures set in motion a vicious cycle of economic contraction, rising unemployment and poverty, lower tax revenues, private capital flight, and rising public debt shares as the economy declines faster than the public debt. What’s more, the austerity-driven ‘blood, sweat and tears’ policies recommended to the European periphery derive from the same economic doctrine that brought us to the brink of disaster in 2008. These policies are not only misanthropic and counterproductive to economic growth and debt reduction in Europe, but will prove explosive for the €uro currency area unless a drastic change of course takes place - and soon.

While I do not pretend to have ‘the’ solution for the €uro crisis, I would like to offer alternative economic perspectives and views on current events, and hope to chart a more humane path toward a balanced, socially fair, and sustainable economic future for the €uro area.

On the origins of the 2008 Great Financial Crisis:
“90+% of traders are men, and they bet all of our bank deposits on liar loans which froze credit leading to 40% average losses passed on to ordinary taxpayers; then begged for trillion-dollar bailouts upon which they paid themselves 50% higher boni.”


Sunday, January 13, 2013

The German competitiveness dogma (part I)


With the rising probability of another election victory for Merkel and her 'christian' democratic party, the PR machines are revving up for a post-election Agenda 2020. The protagonists in this PR-farce (Schmierentheater) are the usual culprits who, before the Great Financial Crisis, supported the competitiveness Agenda 2010 and promoted the deregulation and liberalization of Germany's financial sector: Joerg Asmussen, member of the ECB-Board and former state secretary in the finance ministry who arranged billion-€uro taxpayer bailouts for several German zombie banks, predicts a return of the 'sick man of europe' status for Germany if the country cannot fix its current "weaknesses" (see "Merkel Economy Shows Neglect Amid Concern Sick Man to Return", Bloomberg Jan 9, 2013).

It may come as a surprise that the strongest economy of the eurozone - an island of prosperity - may have weaknesses, given that the country boasts record employment levels, record export sales and tax receipts, a budget close to surplus and negative market interest rates on its federal bonds (meaning investors are paying for the honor of providing credit to Germany and the German people). But according to some economists, Germany's industrial production growth is too slow, labor costs are too high, productivity is not keeping pace with wage deals, the labor force is aging and shrinking, and "then there's the skills issue" (Joerg Asmussen [1]: "the workers of tomorrow aren't getting the education they need to compete globally"  and - god forbid - the country has lost its top-five spot in the competitiveness index of the World Economic Forum (see the Bloomberg article mentioned above) .

Oh boy ! The world export champion and whip-cracker for competitiveness in the eurozone is loosing its competitiveness ? The world is coming to an end !

Not mentioned is a small but decisive detail: between 2000 and 2010 the German work force hasn't benefited from any wage increases but instead suffered real wage losses, witnessed the spreading of precarious employment contracts formerly unknown in Germany, and cut-throat downward wage competition leading to hourly wages of €1 in some cases. While Germany's Agenda 2010 policies thus achieved a real devaluation of unit labor costs, these beggar-thy-neighbor policies created the huge trade imbalances which are at the root of the euro crisis:



The correct economic policy response to redress these imbalances would be to promote wage increases in Germany instead of economically non-sensical austerity measures in the euro zone's periphery. Yet, Germany's genius economists plan to worsen the imbalances by artificially manufacturing a non-existing economic crisis in Germany as an excuse for a second round of Agenda policies (see my blog "the role of crises for....shock therapy" and some reactions to the planned Agenda 2020 here and here). 

Can't say we didn't warn you about what will happen after a reelection of the Merkel government. If you don't like it, do something to prevent this outcome NOW !

“I do not feel obliged to believe that the same god who has endowed us with sense, reason, and intellect has intended us to forgo their use.” 

(Galileo Galilei)
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[1] Obviously, there is nothing wrong with the skills set of the German work force or they wouldn't be able to sell such excellently made export goods sought after by the entire planet. But what about your skills issues, Mr. Asmussen? Got an overdose of neo-liberal ideology and business economics ? Where were your superior skills when you recommended the financial deregulation and liberalization policies that cost German taxpayers hundreds of billion €uros ? It's time you paid for this, Mr. Asmussen ! 
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