Which EU countries have to correct their economic policies?

Participation of Johannes Hahn and László Andor, Members of the European Commission, at the conference on searching for growth and jobs in times of austerity measures in the EU. (EC Audiovisual Services).

The European Commission announced yesterday that 13 member states of the EU are in the danger area of macroeconomic imbalances. The bell tolls about Bulgaria, Denmark, France, Italy, Hungary, Malta, the Netherlands, Finland, Sweden and the United Kingdom. In must be noted that the three countries (Greece, Portugal, Ireland) plus Cyprus which already apply rehabilitation programmes imposed by the troika of EC-ECB-IMF, are not included in this list because their economic policies are already under close scrutiny and guidance.

Imbalances

The Macroeconomic Imbalance Procedure (MIP) is a surveillance mechanism applied by the Commission that aims to identify potential risks early on, prevent the emergence of harmful macroeconomic imbalances and correct the imbalances that are already in place. The annual starting point of the MIP is the Alert Mechanism Report: Based on a scoreboard of indicators, it is a filter to identify countries and issues for which a closer analysis (in-depth review) is deemed necessary.

In announcing the news Olli Rehn, Commission Vice-President for Economic and Monetary Affairs and the Euro said, “Our transformed economic governance enables us to address macroeconomic imbalances pre-emptively and to create the foundations for sustainable growth”.  He also added that “Decisive policy action by Member States and at EU-level is helping to rebalance the European economy. But significant challenges remain: it will take some time yet to complete the unwinding of the imbalances that were able to grow unchecked in the decade up to the crisis, and which continue to take a toll on our economies.”

Unfortunately Rehn did not continue to criticise the countries which are following for many years now self-imposed severe internal austerity programmes, like Germany, causing consequential damages to others. In this case such countries choose to live well below their means in order to accumulate surpluses. The problem is however that by doing so they undermine the efforts of their economic partners to achieve growth. For at least five years now Germany is voluntarily cutting down its internal demand for consumption to the absolute minimum. As a result this country is technically cutting reducing its imports from the rest of the EU countries and the world.

German ideological austerity

In a way this policy is tantamount of the price dumping technic, followed by certain developing countries in international trade. It goes like that. Germany makes a sociopolitical decision to maintain its internal general level of wages at very low levels, at least comparatively lower than its close economic partners in the EU. This has a twofold effect. For one thing German consumers have a reduced purchasing power. Given that Germany is a net importer of a large range of products including foodstuffs, its internal demand for such imports remains low and neighbours’ exports stagnate. At the same time the political decision to keep the general level of wages at low levels, gives to German exporters an additional advantage vis-à-vis the other EU producers.

This is a technic followed by Germany for many years. It is a direct result of the prevailing austere ideology in the German way of life. In some respect however this is not inexplicable. Germany is a giant choked in central Europe, with limited available arable land especially after the loss of Silesia, a result of WW II. The country also suffers of a very limited political and other wise opening to the world. The opposite is true for Britain and France. Both those countries still have a strong global political and economic presence and gains as former major colonial powers. As a result the German politico-economic ideology has been and still is of a country under pressure, always suffering from the ghost of inland suffocation.

Who pays the German bill

Whatever the causes of the current German politico-economic policies, the reality is that this country is actually dumping its products of hard and meticulous labour, in the markets of its EU neighbours and elsewhere, by willingly keeping the internal cost of labour at very low levels. It’s a kind of taciturn national connivance.

This has already caused an array of reactions. Every other European and more so the French, accuse Germany of politically controlling its economy and for artificially keeping the internal labour cost at low levels.

For all that Rehn had nothing to say yesterday, at least not officially. Later on he left to be understood that Germany has also to change its economic policies and allow internal demand for consumption to grow and thus help its EU partners by increasing its imports.