The Great Debate UK

from Nicholas Wapshott:

No, austerity did not work

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There have been a lot of sighs of relief in Europe lately, where countries like Britain and Spain, long in recession, have finally started to grow. Not by much, nor for long. But such is the political imperative to suggest that all the misery of fiscally tight economic policies was worth the pain that there are tentative claims the worst is now over and, ipso facto, austerity worked.

Hold on a minute. Growth is good. Growth is what allows countries to pay down their national debt by increasing economic activity, putting the unemployed to work and making people prosperous enough to pay taxes. But gross domestic product growth alone is not enough to provide adequate sustained prosperity if it does not also lead to significant job growth.

Take Spain, which has just emerged from two years of recession by posting a third quarter growth rate of 0.1 percent. Technically the Spanish slump is over. But a glance at their job figures shows the country has a long way to go before it can genuinely say it has escaped the diminishing effects of austerity -- in the form of tight fiscal policies, public spending cuts and labor and entitlement reforms -- imposed indirectly by Germany through the European Union.

In Spain, unemployment remains stubbornly high at 26 percent; half of those age 25 and under are still without jobs. More than half those age 25 and under in Greece and Croatia are also unemployed. In Europe, only in Germany and Austria is youth unemployment under 10 percent. Greece and Spain lead the sorry list of European countries with more than 25 percent unemployed, and 13 more are enduring joblessness at more than 10 percent.

from The Great Debate:

Will a minimum wage destroy German jobs?

Germany has once again become the world’s favorite whipping boy, roundly criticized over the past few days by the U.S. Treasury, a top International Monetary Fund official and the European Commission president, among others, for running record trade and current account surpluses that are supposedly detrimental to the European and global economy.

The arguments continue, with the Germans themselves saying that the surpluses are simply the happy result of the nation’s industrial competitiveness and don’t hurt anyone else. Lost in the debate, however, is what’s happening in Berlin right now. As Chancellor Angela Merkel seeks to form a new coalition government, she appears to be on the verge of throwing out some of the very policies that underpin the export boom of the past decade.

from Nicholas Wapshott:

Austerity is a moral issue

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Security worker opens the door of a government job center as people wait to enter in Marbella, Spain, December 2, 2011. REUTERS/Jon Nazca

In the nearly five years since the worst financial crash since the Great Depression, the remedy for the world’s economic doldrums has swung from full-on Keynesianism to unforgiving austerity and back.

How do you police without a force?

–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–

You will often have heard it said that the euro zone cannot ultimately survive without fiscal union. This is complete nonsense. The truth is that, even with a full fiscal union, it cannot survive – at least, not with any form of fiscal union that one can imagine all the members signing up to.

All pain, no gain for Germany

By Laurence Copeland. The opinions expressed are his own.

Whenever the question of the future of the euro zone comes up, you can always rely on someone (often a German) to say something like “Yes, of course the Germans don’t like having to foot the bill for the weaklings… but at the same time, they do get enormous benefits from having a fixed exchange rate. I mean, just look at their trade surplus. All those Mercs and BMW’s you see in Milan and Athens and…”

This argument is utter nonsense, and the economists especially ought to know better.

The danger of dictating to Germany

–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–

Having been bullied into swallowing European monetary union in 1998, the Germans are today being pressured on all sides into agreeing to one or more of a range of reforms – burden-sharing, Eurobonds, fiscal union, debt mutualisation, a banking union, joint deposit insurance  – all of which amount to the same underlying reality: Germany foots the bill.

Can Germany afford to let Greece leave?

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By Kathleen Brooks. The opinions expressed are her own.

The upcoming elections in Greece have gained added significance in recent weeks. It’s not just the Greek people choosing their next leader; it is also being presented as a referendum on euro membership. Either vote for a pro-bailout party and stay in the euro zone or vote anti-austerity and you’re out. But is the outcome of the vote really that clear cut? Although three quarters of Greeks want to remain in the euro zone, 80 percent want the terms of their second bailout to be re-negotiated. The elections might not be such a foregone conclusion after all.

It’s worth looking at the two potential “choices” currently being presented to the Greek people. If they choose a “pro-bailout” party that doesn’t mean that champagne corks will be popped in Berlin. Those in power in Athens need to answer to the electorate who will have given them a mandate to challenge Germany and its insistence on tough fiscal reform in return for bailout cash. So if Europe’s authorities think that the election of New Democracy (one of the parties who pledged to stick to fiscal reform post the election) is enough to keep Greece on the fiscal straight and narrow, think again.

Democracy vs. austerity

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By Kathleen Brooks. The opinions expressed are her own.

Throughout history it has always been difficult to take something away from someone once you have given it to them. Europe is finding that it is extremely difficult to reign in public finances once they start to go out of control. Democracies don’t like to vote for austerity, which is why Sarkozy lost the Presidency in France, why a radical left party came second in the Greek elections and why the Conservatives got a drubbing at last week’s local elections in the UK.

This tells us something about democracy in the western world. Governments have to manage the public finances directly – they have to sell the debt, do the sums and present budgets. However, the people who vote them into (and out of) power are the public, who rightly in most cases, believe they have worked hard, paid  taxes and deserve the services and retirement promises made to them.

A two-speed economy for Europe’s youth

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By Kathleen Brooks. The opinions expressed are her own.

A new dimension to the currency crisis is upon us. First there was the two-speed growth – with richer, predominantly Northern European economies performing well while the weak south was on the cusp of recession. But in recent months an even more worrying divide has started to emerge in youth unemployment.

In Spain the number of under 24-year-olds out of work is 50 percent, in Italy nearly a third of young people are without a job and in France the figure is a quarter.

The euro is on life support, and the on-off switch is in Frankfurt

By Laurence Copeland. The opinions expressed are his own.

The short term solution to the problem of how to manage the euro zone crisis may now be right there in front of us. The central issue, as far as Germany is concerned at least, is how to reconcile bailing out the other member countries with keeping up the pressure on them to put their fiscal house in order. Quietly, without any official recognition of the fact, the ECB has taken charge of the situation and is now effectively running fiscal policy for most of the euro zone by simply buying enough Greek, Italian, Spanish and maybe French bonds to keep yields from going too high, but not buying so many as to reduce yields to anything like comfortable levels.

Moreover, treasury officials in every country will be only too well aware that what the ECB giveth, the ECB can take away. Any relaxation in austerity regimes can always be countered by an end to ECB purchases or even by ECB sales in the secondary market, driving yields back up in the space of a few minutes to 7%, 8% and beyond. In short, most of the euro zone members are now  on a life support machine, and the on-off switch is in Frankfurt.

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