Sunday, October 13, 2013

European Growth Strategy - Staying The Course for Disaster

A few days ago some EU officials together wrote an op-ed in the WSJ claiming that "Europe's Crisis Response Is Showing Results, well of course it is; but those results just aren't good (via). In this article they had to say the following on growth:

The euro zone's economic prospects have improved over recent months. Modest GDP growth returned in the second quarter of the year. Industrial orders and output have increased, and many countries' sovereign-bond yields have decreased. Unemployment, while still much too high, appears to be stabilizing. Further modest growth is forecast for the second half of this year, and the recovery should pick up speed next year as long as we stay the course.

Well, I drew two red lines in the following graph on industrial output in Germany (actually worse for the whole euro zone). One represents growth and one represents the work of the austeritians.

What we are actually seeing here is stagnation, almost three years of stagnation. The part about growth picking up as long "we stay course" could not be farther from the truth. The country which achieved the largest GDP increase in Q2 was Portugal, who did not stay course (I have talked about that here).

The op-ed is not based on the overall performance in the last three years, it only takes into consideration the modest growth we have achieved in a single quarter. Even the results of that aren't presented in an honest fashion.

According to their own forecast "growth" will be 1.2 percent in the euro zone next year. That will probably not even be enough to keep employment at the terrible level it is at currently; and to make matters even worse: the program countries will see even lower GPD increases. (Greece 0.6 percent; Spain 0.9 percent only Ireland will grow at an acceptable rate of 2.2 percent) Of course history tells us that the European institutions repeatedly overstated growth potential. So, this seems to be a best case scenario, which will probably have to be revised down. 

What does "staying the course" mean? Among other things which just did not happen like debt reduction (since austerity was counter-productive) it means:
[..] taking forward the debate on the further deepening and strengthening of our economic and monetary union.
Yeah, this debate is actually taking place in Germany, but probably not in the direction that these people want. The left wing Die LINKE and the new party AfD, which four months after it was founded received almost 5 percent of the vote(barely not making it in the Bundestag), agree that the euro should cease to exist. Merkel isn't as extreme. She "only" wants power to be moved away from the European Commission back to the countries. So it is true that a debate is taking place; we are already marching in a direction; and that direction is weakening the EU institutions. Only the SPD and the Greens are still in favor of a deeper union.

The best part is of course the end of the op-ed:
And we will continue on our course. We have everything in place to emerge stronger from the crisis, with more sustainable growth and more jobs.
Compared to what? Compared to the time before the Troika started to destroy the economies in the crisis countries? No we won't. In five years we wont. In what kind of a fantasy world are these people living in?

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