Why growth is now a one way road for Eurozone

José Manuel Barroso, President of the European Commission, and several Members of the College of the EC received in Brussels François Hollande, President of the French Republic. The main item on the agenda, what else than, economic growth. (EC Audiovisual Services).

José Manuel Barroso, President of the European Commission, and several Members of the College of the EC received in Brussels François Hollande, President of the French Republic. The main item on the agenda, what else than, economic growth. (EC Audiovisual Services).

Eurozone trade in goods with the rest of the world in March 2013 left a record surplus of €22.9 billion, according to an announcement released by Eurostat, the EU statistical service. Yet the single euro money area is stuck in a long-term recession and high unemployment trap, without visible prospects for an exit. Francois Hollande, the French President speaking in Brussels at a joint press conference with the Commission President Manuel Barroso, said his country, the second largest economy of Eurozone, recorded a net loss in production and incomes during the first quarter of 2013 and added, that recession affects now many Eurozone countries. He explained that this is not the outcome of lack of confidence towards Eurozone, because confidence is high and interest rates are low. Hollande conclude that what is missing relates to concrete growth measures and reminded everybody that the Growth Pack agreed at the EU leaders Summit of June 2012 must be given flesh and blood the soonest possible.

Returning now to trade, the record surplus of Eurozone in March has to be attributed to a decrease of imports and an increase of exports. Eurostat says that, ”In March 2013 compared with February 2013, seasonally adjusted (Eurozone) exports rose by 2.8% while imports fell by 1%.” This is another proof that Eurozone’s main trade partners, the US, China and more developing countries are right to strongly complain that Europe is not doing enough to fight its internal recession, which is holding down the rest of the global economy.

Criticising Eurozone

The 17 country euro money zone accounts for around 17% of the world economy. Its trade partners insist that Eurozone cannot count any more on exports to keep its economy alive and has to do much more to strengthen internal demand, increase its imports and show to the rest of the world that it cares for the common good, by contributing to global growth. Presently Eurozone is the only major economic area of the world stuck in recession while the developing economies are growing robustly and the US are doing their best to maintain a positive GDP trend.

As a principle imports from another economy add to its growth potential, while exports are undercutting it. If the trade surplus of Eurozone with a country is positive, the money zone ‘steals’ growth potential from its trade partner. In detail now according to Eurostat, “The EU27 trade surplus increased with the USA (+€13.5bn in January-February 2013 compared with +€12.1bn in January-February 2012), Switzerland (+€10.9bn compared with +€7.9bn) and Turkey (+€4bn compared with +€3.2bn). The EU27 trade deficit declined with China (-€25.6bn compared with -€26.6bn) and Norway (-€7.4bn compared with -€10.7bn), and remained nearly stable with Russia (-€17.8bn compared with -€18.2bn)”.

In conclusion Eurozone during the January-February 2013 period either increased its trade surplus with its main partners or decreased its deficits. In both cases the euro area gained growth potential at the expenses of partners. This is a direct result of Europe’s insistence on policies of severe fiscal consolidation, which lead invariably to recession and increases of trade surpluses. The world would not  tolerate any more Germany to suppress Europe and not care about the rest of the globe.

Teutonic control on labour market

Germany is the country paradigm of this kind of economic policies, applying them for at least five to six years now. On top of that, all along that period this country used a peculiar mechanism to hold down real wages in both, the private and the public sector. In so doing Germany can actually manage its competitiveness in a unique way, probably by centrally controlling the ‘free’ negotiations for wages and salaries between trade-unions and employers. This almost invisible and probably ‘underground’ system of labour market control doesn’t exist in any other western democratic country.

For five to six years now, wage and salary earners in Germany keep losing every year a good part of the their real take home pay, yet they don’t strike nor they demonstrate, neither they show their anger at least not as strongly and vividly as in every other European democratic country. Of course one may argue that in those things there are national characteristics, which play a decisive role. In this case the argument must be that the Germans are very good in taking orders and obeying their leaders, when they ask for more austerity. This helps the country’s political leadership to have an easy job to do in supporting the employers’ classes to get richer and richer.

In any case whatever the national characteristics of the European Peoples are, convergence has a meaning also in the cultural and ideological chapters. Unfortunately Madame Merkel doesn’t help towards this direction, while praising the German miser attitude and blaming the Mediterranean people for carelessness in a deeply divisive narrative. The German Chancellor is constantly doing more harm to the European project, by translating everything to the direct and uncovered interest of her country.

Speaking yesterday in the West Germany Radio (WDR) she said that “the right solution for the unemployed youths of the South is to travel and look for a job in Germany”. Is it possible that she cannot understand how negative such an incitement sounds, to the ears of young Greeks, Italians, and Spaniards? Does she really believe that the emigration of a good percentage of the Mediterranean populations to Germany, can solve the labour market problem? And is this country ready to accept all of them? Where? In camps as in the 1950s?

‘Ralaxationists’ gain ground

In any case the opposition against the ‘Teutonic austerity’ from the European ‘relaxationists’ is taking momentum. Manuel Barroso speaking yesterday in Brussels said that the Commission may extend the fiscal adjustment period beyond the two years already accorded to some Eurozone member states (France, Italy, Spain, Greece, Portugal, Ireland). In this way those countries will reduce their deficits to acceptable levels, under a more relaxed procedure and in a longer time horizon. Understandably this will greatly help them to grow. Then the President of the Commission went to Berlin, where he used the same kind of arguments, encouraging this time Germany to adjust wages to (growing) productivity in this country. Both those Barroso remarks are aimed at the same target, that is to help Eurozone grow.

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