Sunday, April 22, 2012

Roll Up For The Magical Misery Tour

You Say Yes; We Say No
Hey - Tirez Sur Mon Doigt; D'accord? (Photo: EPA, via UK Telegraph)

The path of Austerity™ in Europe -- baling out Banksters and Eurozone Zombie Governments on the one hand; slashing those government's budgets on the other -- has had two principal champions: Conservative politicians Angela Merkel in Germany, and Nicolas Sarkozy in France.
Economists (principally Keynesians) have predicted for over three years that Austerity™ would do nothing but drag 'spendthrift, profligate' European nations like Greece, Spain, Italy, Portugal, Ireland (and to some degree, Britain) into a spiral of increased unemployment and reduced consumer demand. They would, in turn, drag the rest of Europe into even deeper recession. Which would eventually torpedo the very, very modest 'recovery' here in the United States.

There's a great deal of current evidence that the Keynesians were, uh, right on the money.
France had a national elections today, pitting Center-Right Nicolas Sarkozy against the Socialist party candidate Francois Hollande. This election would have been between Sarkozy and Dominique Strauss-Kahn, former head of the International Monetary Fund, but for an unanticipated event. Strauss-Kahn wasn't exactly a fan of Austerity; as reported by The American Prospect in the week after his arrest on rape charges in New York City:
As recently as [April, 2011], in a talk at the Brookings Institution pointedly titled "The Global Jobs Crisis," Strauss-Kahn... [said] that
We need financial-sector reform and repair, to put the banks back in the service of the real economy, and direct credit to small and medium-term enterprises -- key drivers of employment and indeed of growth... But fiscal tightening can lower growth in the short term, and this can even increase long-term unemployment, turning a cyclical into a structural problem. The bottom line is that fiscal adjustment must be done with an eye kept keenly on growth.
When he was arrested at JFK airport, Strauss-Kahn was on his way to meet with Angela Merkel in Berlin to talk about resolving what was the Greek sovereign debt crisis. His abrupt departure as head of the IMF meant that the Greek situation was 'solved' by others -- among them Christine Legarde, the Fund's new head and someone much more sympathetic with Merkel and Sarkozy's New Austerian fiscal policies. And, being charged with rape also meant that Strauss-Kahn was neutralized as a political threat to Sarkozy as the Socialist Party's candidate for the French Presidency.

At the time of Strauss-Kahn's arrest, Greece was heading for its fourth (of a total of five, so far) financial crisis. A principal issue was whether holders of Greek bonds could be persuaded to accept a reduction in the interest they'd receive when the bonds were redeemed: A 'haircut', something that would affect a number of European major banks and brokerage houses.
This was negotiated, finally, in the winter of 2011-2012; by then the Greek parliament had no choice. Without the deal (which included more public-sector job cuts and selling off major state-owned industries to Oligarchs private interests), Greece would otherwise have had to default on all its obligations, pull out of the Eurozone, which would send the Euro plummeting on the currency markets and threaten the very existence of the European Union. 

But in May of 2011, when Strauss-Kahn was being arrested, the "haircut" hadn't yet been accepted. I don't know what his position was regarding it. This isn't an argument that his removal from any position of influence in European economic or political affairs was the result of a conspiracy -- just a recognition that there are a lot of interconnected interests at play. 

For New Austerians like Sarkozy, like Merkel, the stakes are very high. For them, the EU's financial crisis is about nothing less than maintaining a coherent European economic and political union in the face of a rising China, the U.S., Russia, and the Middle East, all of whom are in competition with EU nations for the Earth's shrinking natural resources.

The turnout in France's election yesterday was high -- eighty per cent of France's 44.5 million eligible voters turned out for what everyone in and outside the country understood was in part a referendum on Sarkozy's embrace of Austerity.
Both candidates qualified for the second round on May 6, with Mr Hollande taking 28 to 29 per cent of the vote and Mr Sarkozy 25 to 26, according to unofficial estimates from multiple sources.
Far-right candidate Marine Le Pen came third with between 17 and 20 per cent, beating far-left firebrand Jean-Luc Melenchon, who scored between 10.5 and 13 per cent, according to the estimates...
The two finalists will face off in round two on May 6, when Mr Hollande is expected to easily romp home...
In America, however, the focus of our news agencies is on other, more important things.
That the French are willing to vote for Hollande, a person who appears lackluster at best against the more energetic and charismatic Sarkozy, is an indication that the election isn't about personalities, but the policies.
It might seem that Sarkozy's departure could be the beginning of the end of Austerity -- but not yet, and not in any positive way. The European Central Bank, the majority of the EU's finance ministers and the IMF are committed to Merkel's Castor Oil and Carrots plan of strict budget targets and bank bailouts; lower standards of living for many Europeans and relief for corrupt financial institutions. Hollande may be a socialist, but he can't hold back the tide.

Austerity as a policy will simply have to play out and fail, spectacularly. Unfortunately a lot of people will be affected -- some more, others less; but unless you're one of the 1%, the cost of the New Austerian's lack of vision will be paid by you, and me. And for many French, that future is already here.

MEHR: And, from the Monday morning Reuter's wire:
NEW YORK / FRAKFURT , April 23 (Reuters) - U.S. stock index futures pointed to a sharply lower open on Monday on weak European data and renewed anxiety over how the region would tackle its debt crisis...
The euro zone's business slump deepened at a far faster pace than expected in April as European factories had their worst month since June 2009. Investors worried that fears of recession would undermine the political will to tackle the debt crisis...
France's presidential election was thrown wide open by the surprisingly high score of a far-right candidate in the first round vote while the Dutch government was set to resign in a crisis over budget cuts.
I suppose the only response to the continuing fiscal deterioration Europe is experiencing as a result of Austerity is (as The Great Curmudgeon would say) -- more Austerity.

Und Noch Einmal, Mit Schwein: Bondad weighs in as well: Austerity is a failure. Empirically.
Any Questions?

Und Nun Auch Diesen Auflage, "Was Ist Denn Mit Dir Los, Lumpenhunde?":
(NYT Wednesday, April 25) LONDON — Britain slid back into recession in the first quarter of the year, according to official figures released Wednesday, undercutting the government’s argument that its austerity program was working.
The British economy shrank 0.2 percent in the first quarter after contracting 0.3 percent in the fourth quarter of last year, the Office for National Statistics said Wednesday. The first double-dip recession in the country since the 1970s was mainly the result of a slump in the construction industry at the beginning of this year.
Some economists had predicted a small increase in first-quarter gross domestic product after recent surveys had indicated that the British economy was recovering, albeit very slowly. Prime Minister David Cameron’s government had pointed to the recovery as a sign that the austerity measures it implemented were working.
“The economy slipping back into recession comes as a blow” said Azad Zangana, an economist at Schroders. “It’s too early to call for a reversal of government policy, though these latest results do highlight that the economy will not withstand any further acceleration in cuts.”
Any Questions?

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