International

Do you remember? During the campaign for the European elections the SP advocated devising a Plan B for the euro. The structural problems have never been resolved and probably never can be. We predicted at the time that the least sign of adverse weather would plunge the Eurozone into a storm of difficulties. This week one piece of bad news has followed another. The financial markets are again becoming ‘nervous’ and Greece is once more paying 9% interest on new loans. Yet any discussion of a Plan B remains taboo. In my view that’s irresponsible policy. It’s playing with fire.

Photo photosteve101 CC BY

Throughout the world economies are moving more slowly than was expected: there’s no longer any growth in Japan, growth is down in the US, and China too is experiencing more and more problems now that exports are collapsing. The same goes in Europe, with even Germany suffering from falling exports. In short, the world market is not doing well.

In the European Union this expresses itself above all in an enormous stagnation. Inflation is approaching zero, and will certainly arrive there if the fall in oil prices also filters through to the consumer. That perhaps does not appear to be a problem, because without inflation you can at least maintain the value of any pension to which you are entitled without index-linking. In practice, however, consumers will wait to make purchases, certainly if they expect prices in the end to even start to fall. Meanwhile debt weighs ever more heavily on the member states. Inflation ensures, after all, that in time money’s value is reduced, thereby making debts too ‘cheaper’. Without inflation, or with deflation (when prices fall), money’s value increases and it becomes ever harder to pay off debts.

The weaker Eurozone countries still have huge mountains of debt. All of the austerity policies have not enabled them to repay these debts. On the contrary, the debt has increased. Also, the financial markets know very well that these countries could find themselves in difficulties. In the past the chairman of the European Central Bank (ECB), Mario Draghi, has said that he will do all in his power to prevent the collapse of any Eurozone country. Just a tiny problem with this: he’s actually already tried everything that a broad interpretation of the EU Treaty says he can do. The ECB interest rate ia almost zero and banks are already receiving help via a special programme of buying up outstanding loans. All that the ECB can still do to save the situation is buy the member state’s bonds, but this would be in conflict with the Lisbon Treaty and furthermore Germany would never accept it.

Shortly we will also receive the results of the stress test for banks, which will show that many of them are not in good shape and will need to be reorganised or given help. This will prove impossible for weaker Eurozone countries.

Our analysis for the elections was gloomy, but certainly realistic. Fewer and fewer economists see a bright future for the Eurozone. A number of diehards continue to advocate austerity and the destruction of social provisions in France and Italy in the hope that this will enable their economies to return to growth. Sure – that worked so well in all the other Eurozone member states.

Admittedly I expected personally that the euro would mean unrest during the summer, and the autumn is here. The Ministers of Finance, with our own Jeroen Dijsselbloem presiding, refuse to hear, considering that the Eurozone will once again weather the bad news. Yet how? Through still more spending cuts? Or by buyimg up the debts of the weaker Eurozone countries? It’s like playing with fire: further stagnation and a perpetual transfer of wealth to weaker Eurozone countries would be the results. When are the ministers going for once to see this and prepare a division of the Eurozone?