Tuesday, May 22, 2012
Euro-zone Sovereign Debt Crisis Solution - Europeans it's Time To Wake Up!
Since 2008, EU27 sovereign debt has grown at least 3500 billion euros, most Eurozone countries and many other EU countries are in recession, over 50% of young Spaniards are out of work, and over 25% are out of work in most other EU27 countries. Elections across Europe for at least the past 12 months only show the rejection of any incumbent government, and major growth of voter support for both extreme right and extreme left parties and programs.
Despite this total failure of conventional or "liberal democratic" politics, the leaders of Europe’s largest countries continue saying they have no alternative to austerity, although this blanket refusal to change is now breaking up. More than at any time for a decade or longer, there is now a straight choice between No Alternative politics from politicians who have run out of ideas, and those with plans for rapidly moving away from certain disaster.
No better example of this was the presidential election standoff in France, between outgoing Nicolas Sarkozy and incoming Francois Hollande: the first spent his time pleading that History, or at least the global economy had given him a bad deal and sitting tight was the only thing to do. In fact, Sarkozy's refusal to accept his own "laisser faire" politics and programmes had intensified the crisis was one sure reason voters turned away from him - but also accelerated the loss of faith, of French voters in the whole democratic process as revealed in countless polls and despite high voter turnout..
In the US it is also election time and preventing a major new collapse of investor confidence and slump of equity values, if global growth weakens further and Europe lurches into disaster, is focusing G8 attention and bilateral talks between Obama and European leaders. The greatest problem is the leadership deficit: no global economic leadership has emerged. The people are paying the price.
Especially in Europe but also in the US, leaders have deliberately forgotten the first lesson of globalisation: that it is all or nothing. We can succeed or can fail together. Making failure almost totally certain however, the outgoing president of France, Sarkozy, and the now politically weakened German chancellor Merkel have wasted huge amounts of our limited time, and financial resources, and have weakened voter belief in the entire political process through continuing to pursue what they called "financial stability measures". Austerity in Europe will have continuing negative impacts on the US, China, India and other G20 economies: economic collapse in Europe will harm them also. The time is short and progress towards a lasting solution in Europe is now the only solution.
Across Europe and not only the most debt-wracked PIIGS, the clear outlook at present, on current "neoliberal and deflationary" policies, is for sure and certain double dip recession. Borrowing needs can only spiral if that happens. Interest rates on government debt will break out of their artificially low safety zone, for country after country. With no surprise therefore, Obama and Hollande's first bilateral meeting was productive and friendly: both need growth, have to do something fast, and know it.
GROWTH BUT HOW ?
More than ever the only possible read-out is growth, but as much as 25 years of "laisser faire" politics has hollowed out the economic productive machine, in country after country. Simply due to this, no short-term export led growth model is even vaguely credible: domestic investment as well as domestic consumption will have to feature large, with all the dangers they set. Just as certainly, austerity is the worst possible policy. In the 1930s, austerity and protectionism which at the time was not disguised but is disguised today - and is even 'structural' at the level of G20 - powerfully intensified the downward spiral into collective depression: there is no reason to believe that will not happen again if austerity continues to be blindly applied.
Increasingly since late 2011, leaders talk about boosting domestic demand while they also cut jobs in public services, raise taxes, discourage enterprise initiative but rush to aid the dysfunctional, even out of control finance sector, with the claim they have No Alternative. Their pretext is that global economic conditions are materially worsening, and only worsen. They completely refuse to admit their action, and mostly inaction, is the root cause of this.
The Eurozone debt crisis, and the runaway debt growth of other EU countries like the UK, is completely able to be solved: Eurobonds and a critical dose of political courage facing "the markets" can achieve this very fast. Certain countries in Europe, such as France under Sarkozy which not only enabled, but incited their banks to massively play on Greek, Italian and other PIIGS debt - after receiving huge bailouts from the Sarkozy government following the 2008-2009 rout - may have to take rapid and drastic action with their bank sector. What matters, is that public opinion is more than prepared to support this, without simply splitting along left-right ideological lines.
Due to the Sarkozy-type and Cameron-type of "laisser faire" economics, politics, industrial strategy and all the rest, conditions in Europe have now unquestionably worsened. There is no longer any choice but to abandon No Alternative. And of course, as it knows very well, Germany will have to recognise it must also support demand.
The absence of a Federal European state has no importance. Within the eurozone there is already the European Central Bank, which finally will respond to political direction and control: it is ideally structured and positioned to act as lender of last resort, the only reason it does not is so-called "liberal economics" and the so-called single goal of preventing inflation. The crisis facing Europe, today, is of an extreme massive economic slump causing massive deflation, starting with property values and equity values. The claim that the ECB "is unable to act" is hogwash.
Above all, both within Europe, in the G8 and in G20 the main lesson is that global banking and finance have run out of control and must be controlled. Leaders must set a programme of collective action, a shared agenda for growth and act like what they say they are: governors. If not the worst is certain and this current crop of political leaders will regret their refusal to govern.
By Andrew McKillop
Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights
Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012
Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.