Just A Band-Aid Again! But Some Recognition of Need for More!

The EU Summit was not a success if the main goal was to put in place a long-term and effective capacity to deal with the current economic and financial and political crisis. However, another Band-Aid did relieve the two most endangered states, namely Spain and Italy in helping them achieve hopefully lower interest rates on their debts.  But it also came at the cost of continued austerity imposed by the creditor nations, particularly Germany.

We shall see further summits in the coming months and years as measures to prevent a tailspin down in economic activity following the austerity requirements.

The problem is it does not solve the problem of moving towards the necessary growth trajectory which is truly the only solution.  More of the same austerity imposed on Spain and Italy will likely only lead to greater deflation and hardship on their citizens and for that matter impose harm on all of Europe, including Germany and possibly the US. That is hardly a solution one can see as benign.

There is a fig leaf of an investment fund, but as noted earlier, it is largely only old money and is insignificant to re-boost the economies of the sick partners.

In time the markets will likely acknowledge and punish this when the Euro Zone economics fall further and unemployment grows….as it must if the austerity requirement imposed already and new ones kick in fully.  A recipe for disaster!

A lot of economists and some governments are still making the point that a new direction is needed. But as I have noted earlier it will be at a larger cost.

We welcome your comments!

Will They Do It This Time?: EU Summit, the European Crisis and Little Courage or Hope? And The Manifesto of Two World Renown Economists!

This is written just before the EU Summit on Friday the 29th. The betting remains on “too little too late” as the outcome. Today, Angela Merkel and French President Francois Hollande will meet to see if they can find common ground.  But before the meetings, Ms. Merkel has stated her objections to a “grand deal” to place on the table the institutions and resources to put the crisis to rest.

But there are other dynamics at work that may in time force a systemic and credible European-wide response.  One dynamic is the nasty market and the forces betting on both bringing down the Euro and gaining profit from outrageous interest rates and derivative betting. The other force, and the most important, is the utter disaster that their austerity policies have brought upon their people.  Those who have been hurt are rising up and have already defeated a conservative French President who played with the rich and used racist imagery in his election instead of addressing the needs of the majority of his citizens not comprising the 1% of his nation.

But also at work is the growing realization throughout European society (and we hope American as well), that austerity was the wrong direction.  As almost every good economist has cried from the rooftops, stimulus and growth and directly addressing unemployment have to be at the top priority of society.  Today, Paul Krugman and Richard Layard (from Princeton and the London School of Economics) have an op-ed in the Financial Times with the headline: “A Manifesto for Economic Sense.”  They have asked all who see their plain good sense economic argument to rally to the manifesto they have proposed. I urge all to read this article and ponder its clear call to stop the massive suffering being imposed on the people.

The vitality, prosperity, and security of Europe, the United States and the globe depend on leaders who, at last, will recognize the cliff of depression we are approaching and will radically change their direction.

Changing of the Guard? Sarkozy/Hollande and Putin/Medvedev: Bad Policies and Their Consequences

The French presidential election between François Hollande and Nicolas Sarkozy had dramatic results, which were not only a return to power of the socialists but a strong voice of the people in France rejecting the failed policies of blind austerity. They said enough is enough!

This seems to be the rising voice of most of Europe. What is so strange is that it took this long for the people to see the stupidity of counterproductive austerity and a war on the poor and middle classes by the rich. Sarkozy, the son himself of an immigrant, campaigned against immigrants and sought, through appealing to the far right Le Pen backers, the low road to salvation. It did not work. What is interesting also is that the German finance minister, Wolfgang Schauble, called for wage increases for German workers. Was it an act of fear or an act of prudence?

Along with the fall of Sarkozy, the pro-austerity right government in The Netherlands was booted out, and anger grows in the troubled nations, like Greece, Ireland, Italy, Portugal, and Spain. Also of significance were the local election results in the non-euro currency Britain, which had pushed a right-wing austerity effort, and is now in a second recession and bound for failure. Europe may, at last, be rethinking its options and seeing a failed economic policy for what it is – an effort by the rich to thrive at the expense of the 99%. The question now is how long it will take Americans to come to the same conclusion with the Republicans in Congress forcing austerity blindly upon a hurting average citizen?

The challenges ahead remain formidable for Europe. The sad fact is that Germany has a veto over any changes in policies. But the other side is that France too has its own veto over future policies. Also, other nations can bar future actions within the euro zone and in the EU. The question is whether there is room for compromise on both sides. Key decisions are coming up not only on Greece debt but on rules for future limits on euro zone member nations’ debt, which would impose rigid rules leading to even further depressing economic and fiscal actions.

For America, there is also a need to reassess these changes and their implications for our policies and how, given the new landscape, we can best respond to these new forces and especially whether we have an opportunity to pick up where President Obama and former UK Prime Minister Brown hoped to go three or so years ago – a consensus towards global reflation rather than destructive deflation of the global economy.

Looking east: On May 7th, Vladimir Putin took office as the Russian president in Moscow. Demonstrations on Sunday led to violence as thousands protested his election. There is a mood of desire for change at least on the public space. The switch to a Putin/Medvedev “tandem” probably does not mean a fundamental change in Russian policies immediately, which were largely set by Putin even over the last five years. But the landscape of Russia has changed as more and more people are rising for a voice in their governance. The vision of the Arab Spring and the changes in Western Europe act as a beacon for hopes in Russia for a fairer system. But the desire for both a “strong leader” and continued strong forces of a narrow nationalism vying with desire for democratic reform is an old story in Russia which continues to play out with ever-increasing tension and uncertainty.

For both Western Europe and America, there is much anxiety over what will evolve from the new (old?) regime. The new ruler over the Russian Federation has difficulties and challenges ahead. These include a narrow economy based on oil and gas revenues, a failing social support infrastructure (including a health system that is a total disaster), continued centrifugal forces at the fringe of the Federation, an ever-growing awareness of the force of freedom and democracy, government corruption, and, not least, the continued backwardness of much of the country. But decisions must be made anew about long-term relations with the West, China, and on global issues like climate change, the global economic crisis, security (including solution to the missile defense initiative of the West and Russian participation or opposition), and continued support of the indefensible countries of Syria, Iran, and Sudan. But as this blog has noted, Russia and the U.S. have key mutual interests that need to be strengthened on both sides. (More on all of this on our RNS blog in the days ahead.)

We welcome your comments.

By Harry C. Blaney III.

UK in Recession Thanks to Cameron’s Stupid Austerity Policy: Lesson for the U.S.

Wednesday the UK statistical office announced that Britain was in recession. Wednesday’s economic data established that Britain’s gross domestic product fell 0.2 percent in the first quarter of 2012 on top of a 0.3 percent decline at the end of 2011. While the data can be revised and some conservative voices are questioning it, it still is not good to likely have a double dip in the face of promises of a quick recovery by the Tory-Libs government. This is official recognition of what the average citizen of Britain already knew. Sadly, it only reaffirms that the conservative ideology of starving the real economy and raining buckets of benefits on the rich is again not working! 

It has hardly worked before and where tried, especially during the great depression, it has been a total disaster. It can’t really work now and has shown its perverse impact on the lives of people in Europe, given the region a sense of decline, and created a corrosive political environment (including the rise of extreme xenophobic parties).

The troubled nations of Europe are feeling its cold wind and it has caused a political upheaval recently in France and the Netherlands. Already resentment of forced and mindless austerity policies has created anger and despair for many EU countries. It has great relevance for America’s own economy and global leadership capabilities. The Republicans seem hell-bent along the same lines with the same approach that Cameron’s Tory Party has already shown to be unsuccessful with the same rate of unemployment as in America despite a still better social safety net thanks to the programs initiated by the Labour Party after WWII.

President Obama tried a larger stimulus package earlier and at least achieved some gains – America made very modest but real growth and employment gains generally greater than Britain and many countries in the EU. Frankly, we need another full stimulus to get us back into the steady 3-4%+ growth rate which would both lessen our debt levels as a percent of GDP and lower the unemployment levels.

Prime Minister Gordon Brown and President Obama had worked earlier at getting a global consensus towards not austerity but a trajectory of growth. This was stalled by Brown’s UK election defeat, opposition of Germany and other conservative governments, and not least by the Republicans’ effort to defeat Obama in a second term even at the cost of the well being of the US economy.

The question today is whether the British and American publics and perhaps finally the key EU countries, after trying the worst possible policies, will finally choose the right one. To paraphrase Winston Churchill, much of the capacity for good globally depends on the resurgence and reinvigoration of the Western economies – much of the rest of the world depends not only on their trade and aid but also on their leadership to deal with our critical global challenges and to assure global security and peace.

By Harry C. Blaney III.