Tuesday, August 20, 2013

Neoliberals are destroying Europe on Purpose

The German plan for Europe is to ensure sustainable growth through structural reforms. Reforms, similar to the ones undertaken by the country in the last decade, will help the rest of the eurozone, but the southern states are not willing to do what is necessary on their own, therefore reform pressure is needed. But, this idea rooted in neoliberal thinking is deeply flawed.

Germany, which had very low growth in the early part of the new century, managed to overcome the financial crisis of 2008 better than the other eurozone countries. Many attribute this to the reforms done by the social democrat government under Schröder back in 2003. Even Merkel hailed the work done by her predecessor. The believe that the so called Agenda 2010 scheme is in large parts responsible for the improved outlook is rooted so deeply that Germany now tries to achieve the same type of reforms in the countries still deeply in recession.

Almost five years after the crisis began, we still do not see any improvements other than a single quarter of 0.3 percent growth. In fact, countries engaging in the subscribed policy are for the most part performing worse than countries that are not. France, where suddenly - after the socialist president Hollande took over - the need for significant reforms was identified, by the German government, actually saw decent grow. Germany, also, did not engage in any endeavor to improve competitiveness in the last four years; and grew even more than France. The Netherlands - apostles to the austerity policy, which the structural reforms are in fact - remained in recession.

Now, some might point to Portugal, the only crisis country which saw good growth in the second quarter of 2013, but it is not a good example for the success of austerity whatsoever. In April the constitutional court ruled that large parts of the budget cuts were illegal, that same quarter the country finally saw growth again (1.1 percent!). The Minister President Pedro Passos Coelho has already declared that  that he will find other measures to make sure, that the country will return to a more sustainable path of  falling GDP through  budget cuts and tax increases.

Spain unlike Portugal very much remains on the sustainable path of growth through austerity, as can be seen in the below comparison of the Spain with the irresponsible USA.

Not only is GDP on a much more sustainable negative trend, this has also caused to push up unemployment and thereby the number of non-performing loans, an important measure to gauge the health of banks. Percentage of non-performing loans to total assets has now reached an all time high even though a bad bank scheme was implemented last year. But fear not, Germany has agreed to a banking union in the eurozone, which is designed to not help with this development, since solving this issue would cost money.

The crisis response is not working. The eurozone has not even reached the GDP of 2008, yet. Even the Great Depression saw more growth 5 years in. Why does nobody in charge recognize their mistake and try to get the eurozone back on track? My personal answer is that neoliberal thinking is rooted somewhere outside of our physical universe. Weidmann, for example, is able to claim that growing public debt can cause both inflation and deflation without even blushing. He wants a smaller state, that is all that matters. The neoliberal thinkers are not scientists. Any engineer looking at the Spanish performance would say: "OK this is not working let's try something else. let's try what the US did." But since neoliberalism is much more a cult than anything else, the failing prophecy only increased the faith of the true believers. Arguing with these people therefore is automatically bound to fail. They will see signs everywhere.  Prof. Sinn is great example; and Daniel Gros, claimed that Germany shows that austerity does work, but, the country did not engage in any austerity at all. One might be inclined to think there is a pattern.

Germany - much like the USA - did not engage in austerity as a crisis response in 2008/2009. The government paid part of the worker salaries for firms that were in trouble through the "Kurzarbeit" scheme. It even increased the the duration of the short work idea since it prevented a strong increase of unemployment. In addition, the country significantly increased spending, including paying citizens who wrecked their old car €2500 if they bought a new one. The country did not drink the Kool-Aid, it forced down the throats of the Mediterranean states. Merkel knew that austerity was the opposite of her economic policy which did work.

Austerity for growth is a myth made up by a liar, even worse, one that did not even drink the poisonous cocktail, the citizens of the other countries were invited to taste. The crisis and the flawed euro are being used by the true believers to implement their twisted economic model. They are quite happy that the crisis continues. Don't believe me? OK I'll let a "Austrian" explain why he likes the crisis and the euro:

Moreover, the arrival of the Great Recession of 2008 has even further revealed to everyone the disciplinary nature of the euro: for the first time, the countries of the monetary union have had to face a deep economic recession without monetary-policy autonomy. Up until the adoption of the euro, when a crisis hit, governments and central banks invariably acted in the same way: they injected all the necessary liquidity, allowed the local currency to float downward and depreciated it, and indefinitely postponed the painful structural reforms that where needed and that involve economic liberalization, deregulation, increased flexibility in prices and markets (especially the labor market), a reduction in public spending, and the withdrawal and dismantling of union power and the welfare state.
So, yes the goal of "Austrians" is to destroy the welfare state. Do they care that their policy does not have any positive consequences? No, it does not matter at all. They want their economic model implemented, no matter what the outcome is, for prophecy says that in the long run it will work. A short five years of absolute disaster will not stop them, since they are the ones caring about the future of a yet to be born generation. These people should therefore be considered the enemies of everybody alive.

The crisis causes reform pressure, neoliberals therefore are against measures that actually help, since it brings them closer to the goal of a complete destruction of the welfare state structural reforms. They are a disease which infects only sick patients, already in the hospital. We need to start fighting the infection, since it is hell bent on destroying us.

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