Time For Europe’s Politicians To Face The Truth: The Euro Is A Recession Machine

Courtesy: free-pictures.net

Is this the cause of Europe’s prolonged recession, negative inflation and mass unemployment across the south of the continent? Courtesy: free-pictures.net

News this week that deflation is stalking the eurozone while political uncertainty in Greece is undermining confidence in the single currency comes as the iron grip of austerity continues to throttle the economies of southern Europe.

A quick look at data from Eurostat – the European Commission’s central statistical organisation – tells you all you need to know about the internal strains pulling at the heart of the currency union.

The health of government finances varies hugely from surplus in Germany to worrying deficits at similar levels to that currently concerning the British government in France, Ireland and Croatia and worse: 7 per cent of gross domestic product (GDP) in Spain and a staggering 12 per cent in Greece.

Levels of government debt also vary across the eurozone nations with the proportion of debt to GDP ranging from economically manageable ratios of less than 60 per cent in Germany to frankly unsustainable debts of twice that or more in Portugal, Italy, Ireland and Greece (at a whopping 175 per cent). And with deflation on the loose in Europe this situation is set to get worse.

Investors are happy to lend to the German government for 0 per cent – that is, earning no interest – while the Greek government is having to pay 10 per to attract lenders. This difference does not paint a picture of a single unified economy.

Real human costs

But if these are just dry statistics, it is in the very real human cost of unemployment that the greatest strain on the euro area can be seen in every day life. Unemployment has been at levels of 10 per cent or more across the whole of the eurozone for more than three years and stands above 11 per cent currently. But this figure hides an ugly truth of a Europe divided between a rich, employed north and a poor, unemployed south. Eurozone unemployment spans the range from what many would regard as “normal” rates of around 5 per cent in Austria and Germany, through painful levels of 10 per cent and more in France and Italy to depression-like figures of 24 per cent in Spain and 26 per cent in Greece.

And despite all these differences, a one-size-fits-all policy of austerity and fiscal rectitude continues to be imposed by the European Central Bank (ECB) at the behest of its German paymaster across the whole eurozone, as if it really were one single unified economy.

So bad has the situation become, so great is the fear and uncertainty over the future of the European economy, that fund managers have the option of banking their cash at a negative interest rate in the ECB – that is, they are paying the ECB to look after their money! You only do this if you believe your funds will buy you more later.

The huge economic differences across the eurozone reflect the internal strains within the system. If the individual countries of the eurozone still had their own currencies, then exchange rate variations would have the effect of releasing some of this pent-up pressure, easing some of the strains in the system and evening out some of the differences between countries – but that option is no longer available.

Politically unacceptable

There’s a classic Catch 22 situation at work here. For without the ECB changing policy, ending austerity and turning on the printing presses, things will remain tough for the countries in the south of Europe and deflationary recession may set in across the wider eurozone area. But if the ECB were to relax its financial rules and implement quantitative easing (printing money) – possibly, even using it to buy Greek government debt – then it would be saying to eurozone member states that it is okay to run a deficit budget without fear; that an ECB bail out is always available if things get sticky. This is a recipe for profligate government borrowing, future economic chaos and major political rows.

The trouble is that the other major economic option not available because it is is politically unpalatable. It would be comforting to believe that Europe’s politicians would have the best interests of their citizens at heart and start to plan an orderly unwinding of the single currency or at least work to shrink the eurozone membership to a hard-core of similar northern European states. This would release the pressure on the countries suffering from continued austerity and might just remove the threat of long-term recession hanging over the continent.

But that is not likely to happen. The euro is and always has been part of a political project. Europe’s ambitious leaders have invested too much political capital in pushing the vision of currency union as a step towards eventual political union. Indeed, they are unwilling even to accept the idea that the euro is part of the problem.

This was illustrated neatly by the political row in France back in the summer. Economy minister Arnaud Montebourg and two cabinet colleagues had publicly urged the government of France’s President Hollande to end austerity policies and focus on growth. Prime Minister Manuel Valls, with the backing of Hollande, opposed the move and scrapped the whole cabinet as a way of getting the dissenters out. But throughout this whole row no one mentioned the elephant in the room, the fundamental reason for all the austerity and unemployment in France: ECB policy – the euro. France’s political elite are wedded to the European project even, it would seem, to the detriment of their own citizens.

Time to confront the truth

But the situation in Greece is a little different. Greece’s left-wing anti-austerity Syriza party, is leading the election polls. It wants to re-negotiate the terms of the ECB bailout that has impoverished the country with the implicit threat that it could leave the euro. The Greeks, at least, seem to understand that the cause for much of their economic misery lies in Berlin.

It is time to drop the misty eyed European romanticism and confront the truth: the euro is a recession machine. This politically driven imposition of currency conformity is hurting millions of European citizens who are suffering from prolonged recession and mass unemployment.

And in this respect, the euro project is in the same league as other politically driven attempts to impose economic conformity that have failed in the past giving us bread queues of Soviet Russia, famines in Mao’s China and genocide during Cambodia’s Year Zero.

EU leaders should end this cruel economic experiment – but they won’t.

So getting out is the best thing Greece can do.


Eurostat unemployment data here.

Eurostat inflation data here.

Eurostat deficit data here.

Spare a moment…

If you found this article thought provoking or informative then please take a second to Like it and share it with friends and colleagues via social networking using the buttons below. And if you enjoy reading this kind of article then press the follow button!



Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

  • Copyright © 2019 Leon Clifford.

  • Enter your email address to follow this blog and receive notifications of new posts by email.

    Join 74,352 other followers

%d bloggers like this: