Is Germany yielding to pressures for more relaxed economic policies?

Press conference, after yesterday’s European Conference on ‘Youth Employment’ in Milan, Italy. From left to right, Manuel Barroso, outgoing President of European Commission, Angela Merkel, German Chancellor, François Hollande, French President, Matteo Renzi, Italian Prime Minister, Herman Van Rompuy, outgoing President of the European Council, Martin Schulz, President of the European Parliament. (The Council of the European Union Photographic Library, 8/10/1014).

Press conference, after yesterday’s European Conference on ‘Youth Employment’ in Milan, Italy. From right to left, Manuel Barroso, outgoing President of European Commission, Angela Merkel, German Chancellor, François Hollande, French President, Matteo Renzi, Italian Prime Minister, Herman Van Rompuy, outgoing President of the European Council, Martin Schulz, President of the European Parliament. (The Council of the European Union Photographic Library, 8/10/1014).

Not surprisingly, European Commission’s quarterly review on ‘Employment and Social Situation’ and its “Annual Report on European SMEs 2013/2014” which were published last week, both conclude that economic recovery is still quite uncertain, while small and medium businesses are always in contraction, constituting the main impediment to growth. Despite all that, and as if economic recession isn’t a real threat to Europe, the EU Council, the European Union’s decision making body comprising representatives of the 28 governments, proposed last week deep cuts to the Union’s budget for 2015, including reductions of €522 million in commitments and €2.1 billion in payments.

Incidentally, the International Monetary Fund published last Monday 7 October its latest World Economic Outlook, in which it degrades global growth prospects for 2015 and holds the European Union as the main culpable party for that. According to IMF “The weaker than expected growth outlook for 2014 reflects setbacks to economic activity in the advanced economies during the first half of 2014, and a less optimistic outlook for several emerging market economies”. A few lines below the Outlook blames the EU for that by stating, “In the euro area, recent growth disappointments highlight lingering fragilities”. At the same time the IMF compliments the USA by stressing that “Much of the projected strengthening in activity (n.b. in the advanced economies) reflects faster growth in the United States”. Let’s take one thing at a time.

Who cares about the unemployed?

Starting with employment and the social situation in Europe, the EU Commission’s quarterly review states bluntly that “The economic recovery which started in the spring of 2013 remains fragile and future employment developments remain uncertain…many of the new jobs created are part-time or temporary. Unemployment still remains close to historically high levels. And the long-term unemployed represent a large and growing share of total unemployment, with almost 13 million people having been unemployed for more than one year”.

At this point it must be added that the bulk of the long-term unemployment is to be found in the south of Eurozone. Spain, Italy, Greece, Portugal even France are haunted by historically high unemployment, without any indication that this situation may be reversed in the foreseeable future. This observation doesn’t tell the entire story. Unemployment lurks hidden even in countries with low overall percentages of jobless. The truth is that Germany hides its unemployment in the form of part-time occupations or ‘mini’ jobs, which cannot provide a family not even with the daily bread. Unfortunately Berlin up to now insists on its austere views on economic policies. This is also reflected in EU’s budget spending.

As noted above, despite the economic stagnation of Europe, the Council of the EU representing the 28 governments didn’t hesitate to cut down the Union’s budget for the next year. The European Parliament however rejected all those cuts. To be noted, that without the Parliament’s consent the budget cannot be approved. This said, the European deputies went even further and proposed increases in spending. In detail, the MEPs of the Parliament’s Budget “not only reversed all the cuts made by the Council of Ministers in the 2015 budget…but also recommended adding €190.5 million more for small and medium-sized enterprises, research, and education…”.

The SMEs in focus

This brings us to the crucial issue of the health of the European SMEs. According to the Commission’s annual ‘SMEs Performance Review’ European small and medium enterprises were “still struggled in 2013, in spite of signs of positive economic recovery”. Obviously nothing has changed in 2014, with the growth rate being reduced to just some three decimal points above zero and prices running the danger to start falling abruptly.

According to the latest Eurostat data, 99 out of every 100 European businesses are SMEs, as are 2 in every 3 employees and 2 in every 3 euro of value added. As the Commission puts it “This illustrates how critical SMEs are”.

Still Germany vows to austerity. In the latest incident, Jens Weidmann, the Governor of the country’s central bank, the Bundesbank, strongly criticized the European Central Bank for having decided to buy private sector bonds. On the same occasion he, a non-elected bureaucrat, reprimanded France, for adopting a 2015 budget providing for a bit more spending than his austere logic permits.

Germany suffers too

However, it seems that the latest statistics showing that stagnation is now invading the German economy too, have prompted the Berlin government to start thinking about means to support growth in the entire Eurozone. According to major international news agencies, relevant information was leaked during yesterday’s gathering of the 28 EU leaders in Milan. There, they participated in the “Youth Employment Conference” organized by the Italian Prime Minister Matteo Renzi.

Understandably, France and Italy have decided to stand by their demand for more relaxed economic policies in the European Union. By the same token, Germany has started yielding to pressures for less austerity, now coming from all directions, including the US. If this is the case there must soon be some sings towards this direction, starting with the EU budget for 2015.

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