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The troika has consigned one-third of the Eurozone to a gratuitous Great Depression
I have written several articles recently describing Spain’s continuing Great Depression levels of unemployment and the absurdity of the troika’s policies with regard to the “threat” presented by “deflation.” The troika consists of the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF).
This column focuses primarily on Italy’s related economic and political problems, but it also briefly discusses what is likely to be political instability in the longer term in France and Spain as well. Update: it appears that Italy’s prime minister’s resignation could be imminent (see discussion below). Italy and Spain are suffering Great Depression levels of unemployment. Collectively, there population is roughly 105 million, which is nearly one-third of the eurozone’s total population of roughly 330 million. Italy and Spain are two of the eurozone’s largest economies data are as of yearend 2012 and are taken from the “Trading Economics” site.) Note that Italy and Spain’s GDPs are still materially smaller than they were before the crisis. They have not begun to dig out of the hole they have been in since 2008.
The troika is rationally anti-democratic: it fears the voters’ rationality and competence
The fact that the troika does not find it an unacceptable emergency that one-third of the eurozone’s population has been forced by the troika’s self-destructive “austerity” policies and the severe defects of the euro into a gratuitous Great Depression proves that the troika consists of three organizations that are abject economic, anti-democratic, and moral failures. (In fairness, the ECB and the IMF were designed to be anti-democratic and they have succeeded in that portion of their mission. The theory was that their anti-democratic nature would be an advantage. That theory has failed, but the ECB and the IMF remain proudly anti-democratic failures.) The troika’s anti-democratic for a rational reason – they stink at their jobs and would have been tossed out by a democratic electorate years ago. The most recent Gallup poll results produced this headline: “EU leadership approval ratings tumble to all-time low.” The poll found that: “citizens who approve the EU’s leadership are in a minority in as many as 23 countries out of the 27 surveyed.” The more EU citizens dealt with the troika the less likely they were to approve of the EU’s leadership. The article ended with the point we have been emphasizing. The euro and the troika are the gravest threats to European unity.
“An earlier survey by Gallup showed that up to 60% of citizens across Europe said there were ‘better alternatives to the policy of austerity’ and 51% said the austerity-driven response of the EU since the economic crisis ‘was not working’.
These sentiments also reflected on the EU leadership approval ratings released this week: ‘Disapproval is clearest in the bailout countries where the EU has imposed austerity policies, compounding the economic hardships individuals were already experiencing from the financial and economic crisis,’ Gallup said.
The record-low approval could consolidate the expected rise of anti-European parties in next May’s EU elections.”
The figures on the rejection of the troika’s central lie – “there is no alternative” (TINA) to quasi-austerity – are exceptional. The troika, the individual Eurozone governments, and the media have spread the TINA propaganda with a zeal that is hard to imagine unless you are a fellow geek who has to spend an inordinate portion of his or her life reading the endless propaganda. It is a testament to the reality-based community that they have rejected this failed economic dogma.
Even the troika doesn’t really believe in austerity
It is important to be precise about the troika’s austerity policies – they are actually hybrid policies involving modest fiscal stimulus. Almost all the Eurozone nations run government budget deficits. The ECB’s most recent Monthly Bulletin reports that in 2012 the eurozone’s overall average governmental budget deficit was 3.7% of GDP.
Remember that the bogey man of running deficits in response to a recession is supposed to be hyper-inflation – and that “Euro-area inflation remained below half of the European Central Bank’s target in January .” These facts demonstrate that fiscal stimulus is criminally inadequate and unnecessarily consigning many millions of Europeans to unemployment and migration.
Deflation “danger zone” reached, whereupon the ECB redefines “zone” as not dangerous
Instead, all the Eurozone hysteria is about “deflation” – but the troika refuses to recognize that the problem is grossly inadequate demand (hence Great Depression levels of unemployment and virtually no inflation). My prior columns have explained the troika’s and business media’s insanity of acting like it makes sense to wait until an economy in a Great Depression is also on the cusp of deflation before acting and insane to think that monetary policy (instead of fiscal policy) is the effective means of responding to deflation. “European Central Bank President Mario Draghi said at the weekend that the ECB wanted to ensure that inflation in the euro zone did not drift into what he called a ‘danger zone’ below one percent”.
The obvious problems with Draghi’s “danger zone” claims are that the eurozone’s mean inflation rate (0.7%) is well within the danger zone, some nations in the periphery already have deflation, and Spain and Italy have falling inflation rates below the already inadequate eurozone average. Recall that the ECB’s inflation target is 1.5 percent – which means that under its own (failed) theories its policies are failing to produce the outcomes the ECB wishes to achieve. Draghi’s response was to redefine “danger zone” as not dangerous, and no longer a “zone” of one percent or lower inflation.
“The euro zone is currently ‘experiencing a prolonged period of low inflation,’ Mr. Draghi acknowledged at a news conference Thursday in Frankfurt. At a later point he said: ‘We have to dispense with the question, Is there deflation? The answer is no.’”
Draghi redefined his own definition of a deflationary “danger zone” into the completely benign phrase – “a prolonged period of low inflation.” His specialty is propaganda, not economics.
Had the troika actually tried to mandate “balanced budgets” they would have succeeded in putting even many core Eurozone nations into a Great Depression. The modest fiscal stimulus does provide the prospect of a very weak recovery.
“Thursday’s figures were met with official silence in Madrid. But in an interview with El País, the European commissioner for economic and monetary affairs, Ollie Rehn, said that in Spain the EU had tried to combine the goal of solvent public finances with economic reforms.
‘There were no easy alternatives for Spain nor for anyone. Those that think there was a simple way to recover access to the markets without painful measures are wrong,’ he told the paper. ‘It will take 10 years to fix the Spanish crisis.’”
Rehn’s nightmare vision that it will take Spain, Italy, and Greece an additional decade (yearend 2024) simply to crawl out of the “crisis” phase of their Great Depressions. Their recessions began in 2007 and 2008 so Rehn is predicting Great Depressions that will last far longer than that of the 1930s. Rehn makes no promises as to how long beyond 2024 it will take for the periphery to attain full employment.
As I have emphasized in prior articles, Rehn’s nightmare is actually the troika’s optimistic scenario because it assumes that there will be no negative economic shocks from 2014 to 2024. The troika does not suggest that Rehn’s nightmare scenario is realistic. It is already warning about a number of potential shocks.
The troika consigned the residents of Spain and Italy to twist slowly in the wind. The chilling promise of its principal propagandist, Ollie Rehn, made in response to the recent news that the unemployment rate rose in Spain, is that the troika expects that the eurozone’s periphery will continue to twist slowly in the wind for another decade.
Italy: An economic disaster where the prime minister may be sacked soon
A recent article’s title captures the mood: “Despair in Italy as unemployment numbers rise again.”
“Italy’s jobless rate rose in November to a new record high of 12.7 percent.
That month there were 55,000 fewer people in work compared with the month before, and 448,000 fewer than in November 2012.
Youth unemployment also hit its highest level on record 41.6 percent.
The young are dispirited….
Prime Minister Enrico Letta has called the youth unemployment rate a national emergency.
Since the start of the global financial crisis, in 2007 Italy has lost over one million jobs and a recent opinion poll found 70 percent of Italians who do have a job fear they could lose it.”
The Italian unemployment rate gets uglier when one examines the specifics. A recent Bloomberg article title captures one of the key points: “Euro Jobless Record Not Whole Story as Italians Give Up.”
“While economists predict unemployment in December stayed at an all-time high of 12.1 percent, with about 19 million jobless, that tally excludes legions of adults who would also work if they could. Bloomberg calculations for the third quarter show a wider total of 31.2 million people of all ages are either looking for jobs, willing to do so though unavailable, or else have given up.
Giuseppe Di Gilio, 30, is one of 4.2 million such people who don’t appear in Italy’s unemployment statistics. The most recent so-called labor underutilization rate in the third-biggest economy in the euro area was 24 percent, more than double the official jobless rate.
The euro area’s official unemployment rate includes only those who actively sought work in the previous four weeks and are available to start within the next two weeks. The labor underutilization rate compiled by Bloomberg using Eurostat data for the third quarter includes the official unemployed as well as those willing to work who have given up looking for a job or are not immediately available.
Among euro-zone countries, Italy has the largest group of potential workers who don’t appear on official unemployment statistics. The gap between the country’s labor underutilization rate, encompassing people between the ages of 15 and 74, and its unemployment rate is more than twice that of Spain and more than five times that of Greece.”
The troika has been eagerly trying to induce large wage cuts for workers in the periphery. This further reduces already inadequate economic demand and harms the recovery as well as the workers and their families. The same Bloomberg article explains that the wages for many Italians are so low that they discourage employment.
“Over 12 percent of workers in Italy aren’t able to live on their salaries alone, according to an EU study published this month. That’s the highest percentage after Romania and Greece. Italy is also one of the worst countries in which to lose a job, since the percentage of people able to find other employment within a year is between 14 percent and 15 percent, the lowest in Europe.
The labor underutilization rate excludes temporary layoffs and involuntary part-time workers. The gauge also doesn’t take into account around 10.1 million women who don’t want a job and are not included in the workforce.”
The Bloomberg article shows that Italy is behind most of Europe in female employment.
“‘It pays off for women to stay at home,’ also because of the lack of child-care services, Bank of America’s Tenconi said.
Italy’s female employment rate in 2012 was 47.1 percent, the lowest in the EU after Greece, Malta and Croatia, and below the region’s 58.5 percent average.
The strength of family networks, which allow income sharing in tough economic times, also works as a disincentive to seeking low paid jobs. That’s particularly true for many women and young people who find it more viable to stay at home.”
Youth unemployment in Italy has been a national emergency for over five years – Letta is right, but far too late. Youth unemployment is horrific in the eurozone periphery.
Here is the breakdown by country (Greece did not report)
Source: International Business Times
Note that youth unemployment is significantly worse in the eurozone than in the broader category of Western European nations. The eurozone members were supposed to be the stronger, more sophisticated economies with the superior institutions such as the ECB, but for the reasons we have often explained, the euro’s tragic design flaws and the troika’s economically illiterate “bleed the patient” treatment of insufficient demand has made the eurozone a deeply inferior series of economic institutions and its treatment of the periphery a disgrace.
The same article from which I took the charts explained some of the special problems caused by youth unemployment.
“Youth unemployment, defined as jobless working-age people under the age of 25, is of particular concern because it can take much longer for younger inexperienced workers to re-enter the workforce and they end up with fewer economically active years in which to pay income taxes to support social services. There is also a correlation between high rates of unemployment among youths and social unrest.
And the trend is moving in the wrong direction for the region’s worst-hit countries. Spain’s youth unemployment jumped nearly three percentage points from November 2012 to last November, while Italy’s leaped four percentage points, from 37.6 percent to 41.6 percent.”
Italy’s Great Depression is doing great damage to Italians, but it has also prompted political instability and the troika’s assault on Italian democracy when they staged a de facto coup to install former Prime Minister Mario Monti. Of course, given that they were deposing Silvio Berlusconi, there were few protests. The troika acted even more anti-democratically in forcing the abandonment of the plebiscite in Greece.
The current Italian political drama involves the question of how long Prime Minister Enrico Letta can remain in power. Matteo Renzi is trying to replace him, without benefit of an election. Renzi’s quest for power is greatly aided by Italy’s Great Depression.
Update: Renzi has just called for a change of government. He is indicating that he wants to rule without any vote by Italians. Renzi is popular, but taking power without a vote is not.
“Mr. Renzi scores high in national opinion polls, but a survey this week from the Piepoli Institute showed that only around one in six Italians approve of Mr. Renzi becoming prime minister without a vote.”
Hollande’s approval rating is lower than France’s youth unemployment rate
Neo-liberals are having a field day mocking French Prime Minister Francois Hollande. Not for the multiple mistresses/partners du jour, but for the intersection of his economic and political difficulties.”
“The French aren’t impressed. The president’s popularity ratings, already at a historical low, continue to fall; a poll published Feb. 6 showed that only 19 percent of voters still have confidence in him.”
By discrediting national institutions such as his party by caving in to the troika’s and the French business sector’s demands for greater austerity Hollande has inadvertently created great discord against the eurozone. The same neo-liberal critic explains.
“The far-right National Front led by Marine Le Pen, which campaigns on a tough anti- immigration platform and would take France out of the eurozone, is the main beneficiary of this sense of popular disenfranchisement.
The party is leading in the polls for European Parliament elections in May.”
Hollande is even more unpopular than the (conservative) Prime Minister Mariano Rajoy of Spain. Again, that is a significant accomplishment because Rajoy’s austerity helped push Spain to the highest unemployment rates in its history. As we stress repeatedly to try to get the fact to penetrate to the media, Spain is in a Great Depression.
The same neoliberal critic mocks Hollande’s abandonment of his opposition to austerity and the big banks and his abandonment of the term “socialist.” Hollande has declared that he is a “social democrat.” Whatever the label, his cowardly retreats have made him one of the most unpopular politicians in France – a large accomplishment given French politicians. Meanwhile, youth unemployment in France has increased to a level larger than Hollande’s popularity rating. “Youth Unemployment Rate in France increased to 25.60 percent in December of 2013 from 25.50 percent in November of 2013.”
Hollande is now pushing increased austerity in the form of significant cuts to public spending. That makes him the very model of the modern social democrat. They become pale imitations of the conservative party who do the dirty work for them of crippling the most effective social programs, discredits the (once) progressive party, and loses control over the parliament or legislature.