May 30, 2013
by Michalis Peglis, Political Scientist
Angela Merkel features nowadays as the single most powerful politician in a number of Eurozone member states including nationals. Taking into account her past 3 years continuous fall back record on all the key moments of the European debt crisis, as well as, today’s bad to worse state of play, in the deep waters of uncertainty, she is certainly a phenomenon.
Merkel addressing the 330 million Eurozone fellow citizens is keeping strong on her commitment towards the path of fiscal consolidation and heel what she considers as the roots of the problem of the European economy. In reality, she is addressing the 81 million German voters saying to them: «you will not pay for the mistakes of others». As a result, German voters go to bed relieved every night and opinion polls are getting better every day for Angela. She has positioned herself as the best one to do this. Indeed, the redirection of the monetary policy in the Eurozone, anyway you do it, bears some cost for the 3A countries and runs against a core set of values of the protestant ethic. German voters deny sharing the cost for the mismanagement of the public accounts of other fellow Europeans. Of course, the medium voter has no data to understand what the slowdown of the German economy in the last year has cost already and how worse could things get in the next months. In 2012 Germany’s growth rate dropped from 3% in 2011 to 0,7%.The 2,3% difference translate to 60 billion Euros potential growth that was lost from the German economy.
The latest fall-back position of the German Chancellor would be labelled: “September-driven strategy”. This strategy tries to balance halting the deterioration of the crisis while keeping face towards the German tax payer. Implementation is done via accepting, more and more, small relief measures. Accepting the prolongation of fiscal consolidation pace, giving consent to speed up disbursement of Commission funding, extending the EIB budget etc. It appears that Berlin even considers giving out bilateral loans, with low interest, to periphery states (Portugal and Spain to begin with) through state development institutions. In reality, Merkel aims to blur its label as the “patron of austerity” in Europe with mild policies that do not challenge the status quo of the monetary policy model. Preserving this model is the key to stay committed to the German audience ahead of the September election. These measures, though, are simply unable to respond to the systemic nature of the crisis that has matured from a negligent periphery problem in 2010-2011 to an endemic Union wide recession, within 24 months or so. The situation will just continue deteriorating.
Few months ago projections by top economists, at the level of Nobel or close, said that the Eurozone and the German economy would catch up in spring 2013. Recently, other series of outrageously mistaken forecasts revised growth to return in the autumn of 2013 and today the latest Eurostat projections forecast anaemic growth of 0,4% for Germany in 2013. If these ones also prove mistaken and Germany goes negative in 2013 will any of these economists be hold accountable? If by November or so this scenario materialises then the bill of the slowdown will be so high that bailing out Eurozone for good via changing the tight euro model will appear as the most efficient strategy.
Countries suffering from austerity programmes today have disappointed by their inability to put forward an alternative path. If we are muddling through the mud for three years now and they make ambitious statements every other day against austerity, they should, at minimum, have elaborated something concrete as an alternative. Changing the whole economic paradigm is a critical task and bears risks as well. We have heard too many ideas, some even convoluted: a Eurozone government, Eurobonds of different types, a Eurozone budget, increase of circulation of money, unlimited ECB euro fire, banking supervision and regulation etc. Different proposals address different angles of the same problem, but will have different effects in different Eurozone countries. What we have not seen as yet is a one full-fledged alternative. Such a proposal should be the result of a consultation among anti-austerity countries of the Eurozone. It must have both a roadmap and concrete set of policy steps and consequent explanatory background work, to be taken seriously in the European discourse. Our understanding about the systemic nature of the problem is that the best strategy is increasing euro circulation and thus creating inflation in the Eurozone. This will consequently devaluate the currency, thus devaluate the European debt, the core problem today, in the global markets. This would be the most efficient and less unfair political and economic vehicle to foster the return to growth in Europe. Waiting the invisible hands of the markets to resolve the debt crisis today will result to several years of stagnating recession that will sacrifice a whole generation of young unemployed fellow Europeans and make social conditions unsustainable for the European integration.
Thanks God we are not that far any more. September is getting closer and expectations run high for the day after. We have confidence that the European Germany, after September, they will do what is needed.