Germany Signals a Historic Shift From Austerity That Could Upend the Economy of Europe — Marshall Auerback

Germany has been the epicenter of the austerity crazy. But the only final solution is to get free of the euro straight jacket. The dollar works in a currency union of sovereign states in the US because the union is string socially, politically and economically. 

Those condition don't apply in Europe, and the US had to go through a bloody civil war on this way to it. The notion that a common market with a common currency and open borders has failed and failed so badly that nationalism in the pejorative sense of xenophobia is on the rise.

Counterpunch
Germany Signals a Historic Shift From Austerity That Could Upend the Economy of Europe
Marshall Auerback

Bill Mitchell — Bundesbank remits record profits to German government while Greek health system fails

I will write a detailed account of my view on how to deal with the coronavirus from an Modern Monetary Theory (MMT) perspective next week. But today I want to highlight something that just ‘goes through to the keeper’ (cricket reference meaning no-one pays attention to it) but is significant in understanding what is wrong with the Eurozone. I refer to information that is contained in the latest – Annual Report 2019 – released last week by the Deutsche Bundesbank. If you juxtapose that with another report on the Greek health system you get a fairly clear view on what is wrong with the whole EU set up....

Bill Mitchell – billy blog
Bundesbank remits record profits to German government while Greek health system fails
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — European Union–business as usual as the madness continues

At the weekend, the German Social Democratic Party elected a new leadership from the Left of the Party, in the hope of resurrecting their disastrous political standings (Source), In rejecting the other main contender, current Finance Minister Olaf Scholz, the decision has apparently threatened the GroKo (Große Koalition), the coalition between Merkel’s CDU/CSU union and the SPD, which, arguably, has been the reason for the declining fortunes of the SPD. They have, in effect, abandoned their charter and become part of the neoliberal, austerity machine. The new leadership rejects the basis for the GroKo. At present, the SPD is only marginally ahead of the far-right AfD with the Union and Greens ahead of them. The same political dislocations are happening throughout Europe although the antagonism to the neoliberal austerity orthodoxy is more manifesting in chaos than a defined direction away from the major political parties (Britain is currently a good example of that). Meanwhile, the orthodoxy continues in the European Commission and in its – Autumn 2019 Economic Forecast: A challenging road ahead – they are requiring the majority of Member States to inflict more austerity on their nations even though a recession is looming. That is, business as usual as the madness continues.

Looking like the West is doing its best to blow itself up. Whom the Fates would destroy they first drive mad. (source)

This is in part the consequence of abandoning liberal values based on virtue ethics for neoliberal values based on bourgeois liberalism.

Bill Mitchell – billy blog
European Union – business as usual as the madness continues
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

The German Problem — Heiner Flassbeck

German mercantilism, deficit hysteria and debt phobia compounded by economic ignorance and the preference for theory over data.

From some reason through, Heiner Flassbeck does not mention the ruinous effect of adopting the euro as  the European common currency, which underlies this entire issue.

Flassbeck Economics
The German Problem

Heiner Flassbeck

Bill Mitchell — Germany to play smokes and mirrors again

Germany is proposing some more smokes and mirrors so that it can maintain its position as the exemplar of fiscal responsibility by obeying its ‘Debt brake’ yet inject significant deficit spending into its recessed economy, which is starved of public infrastructure spending. They are proposing to set up new institutions which will be funded by government-guaranteed debt and spend billions into the economy while ensuring these transactions do not show up on the official fiscal books of the German government. The only financial constraint these new agencies will be bound by are the European Commission’s Stability and Growth Pact rules. But because the allowable spending difference between the ‘Debt brake’ and the SGP is huge (but still well below what is needed to redress the years of austerity and infrastructure degradation) and so will provide a much-needed stimulus to the ailing German economy. Meanwhile, the Germans will tell the world how thrifty they are and how they obey their own rules. And then they can say that all other Member States should also stick to the rules. Meanwhile, the smoke and mirrors are going hammer and tong to create spending growth that bears no resemblance to the allowable growth under the Debt brake. The Debt brake then is just a sham. The upside is that needed public spending will enter the economy which tells us that the Debt brake should never have been introduced in the first place. Such is life in the EU – a daily circus.

The conservative mind equates financial debt with being guilty of moral failure, sin. In fact, in German the same term, Schuld, signifies both debt and guilt, as Michael Hudson so tirelessly points out. So this is conflation of finance and morality is a no-brainer there. 

But even in English there are two dominant translations of the Lord's Prayer, where one rendering as "forgive us our debts," and another "forgive us our trespasses." American conservatives also tend to be more religious culturally than liberals, that is, they "inherit" their world view through social reproduction of the culture by means of upbringing and association. So even when the terms are different, the conservative mind conflates them anyway.  It is backed into conservative culture and is socially "inherited" as a key fundamental of the conservative cultural world view.

In conservative minds, this manifests as a black and white world in which savers that are virtuous, with the savers supposed funding the profligate borrowers. Debts can never be cancelled other than in a way that involves punishment, bankruptcy at least, if not the poorhouse and debtors prison. 

The same applies to obligations among nations, which is a reason that the notion of imports being a real benefit when the exporter is acquiring the importer's debt is "wrong," and also held to be "dangerous" since it is believed to give the debtor power over the nation issuing the debt. In the mercantilist view, a nation's wealth is not figured in real resources but rather in financial wealth, which meant gold or silver back in the day. Now it accumulating the debt of other countries.

Deficit hysteria and debt phobia underlies the preference for fiscal austerity, which is often advertised as "expansionary fiscal austerity," a virtuous thing that stands in contrast to the "fiscal profligacy" and "fiscal irresponsibility" of the "degenerate" liberal mindset.

Because this erroneous belief about how modern money works is embedded in a strongly held moral view, explanations of how operations actually take work, together what this implies for macroeconomic and formulation of socio-economic policy, fall on deaf ears, if they are not ridiculed as "liberal" fumes of a disordered brain.

Since the "savers" are in charge politically under bourgeois liberalism, the ownership class being constituted of savers by definition, the story goes on, and on, and on.

Bill Mitchell – billy blog
Germany to play smokes and mirrors again
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — Germany is now suffering from the illogical nature of its own behaviour

Last week (August 9, 2019), the British Office of National Statistics (ONS) – GDP first quarterly estimate, UK: April to June 2019 – told us that the UK economy contracted by 0.2 per cent in the June-quarter 2019 after having grown by 0.5 per cent in the March-quarter. The UK Guardian pundits and the Remain cheer squad all screamed Brexit and were heard to be walking around in circles saying “see, we told you so”. Meanwhile (August 7, 2019), not far away (according to the Remain crowd’s much-loved gravity trade models), Germany’s Statistisches Bundesamt (Destatis) press release – Production in June 2019: -1.5% seasonally adjusted on the previous month – told a sorry tale. In annual terms, Germany’s industrial production has contracted by 5.2 per cent. We also learned that Germany is probably in recession. According to the Remain-logic, that must be Brexit too, n’est-ce pas? Meanwhile, just a bit further south, Italy is in turmoil. Obviously, Brexit uncertainty. I jest of course (well a bit). But in a real sense, this is all tied into Brexit in one way – and it is not the way the Remain camp would like us to believe. In fact, what I have in mind gives more weight to the Leave position and reflects on how intransigent the European Union elites are in dealing with the Member States....

Bill Mitchell – billy blog
Germany is now suffering from the illogical nature of its own behaviour
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Warren Mosler — "Entweder wir glauben an die Demokratie oder nicht"

Die Zeit is somewhat similar to the NYT in the US in that it is centrist to left of center and intellectual. But it differs from the Time in not being considered the paper of record. It is published weekly rather than daily.

Die Zeit is a major venue and their publishing this article by Warren Mosler is a big step forward for MMT in Germany.

Die Zeit
"Entweder wir glauben an die Demokratie oder nicht"

Warren Mosler

Spiegel — Rising Tensions: Trump's Iran Escalation Poses a Threat for Germany

The U.S. under Donald Trump is exacerbating tensions with Iran, leading many to fear war may be just around the corner. Any military conflict would have dire consequences for Europe, but the Americans remain undeterred.…

Germans not happy.

Spiegel Online
Rising Tensions: Trump's Iran Escalation Poses a Threat for Germany

Staff

Bill Mitchell — The German undervaluation obsession is resistant to ‘reform’

Martin Höpner, who works at the Max-Planck Institute for the Study of Societies in Cologne, recently sent me a copy of his latest paper – The German Undervaluation Regime under Bretton Woods: How Germany Became the Nightmare of the World Economy (published January 2019). He presented this research at a Makroskop workshop in Wurzburg on October 13, 2018 – I was on the same panel as him at that workshop and enjoyed some very productive conversation about these issues. It is a very interesting historical analysis of the way that the German elites (central bank, industry groups, banks, politicians, and trade unions) have collaborated since the 1950s to suppress domestic consumption and maintain the nation’s export competitiveness, even though this has undermined material prosperity for workers. The relevance of the analysis to current debates about the Eurozone and its capacity for reform are that the undervaluation regime is entrenched in Germany’s institutions, its history, its culture, and its power elites and have been that way for many decades. What the Europhile progressives, who still think reform is possible, have to show is that this entrenched position can somehow be abandoned. They have never provided any convincing argument to substantiate that hope/belief. That is why I continue to call them out as dreamers – good intentions but naive to history....

It is hugely to the advantage of the German elite to devalue the DM in effect by substituting the euro for it. This is the foundation of contemporary German mercantilism. It is a major reason the EZ cannot work. The advantage to Germany is too great under it, and the German elite is not willing to give it up.

Bill Mitchell – billy blog
The German undervaluation obsession is resistant to ‘reform’
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

See also

The Euro is Not Without Alternative
Wolfgang Streeck

Tom Luongo — Merkel Draws the Line Against Trump

Merkel refuses to make Germany a powerless colony of the US in addition to be an obedient vassal.

As always, follow the money. See also Tom Luongo's Merkel Stands Against Trump’s Energy Dominance.

Tom Luongo

Merkel Draws the Line Against Trump

See also

Medium — Insurge Intel
The “disintegration” of global capitalism could unleash world war 3, warns top EU economist

Nafeez Ahmed

See also

Moon of Alabama
U.S. Efforts To Block Huawei Gives China An Advantage

Bill Mitchell — German growth strategy falters – exposes deep flaws in the EU architecture

Last week (February 14, 2019), Eurostat released its latest national accounts estimates – GDP up by 0.2% and employment up by 0.3% in the euro area – which confirmed that EU growth rates have declined significantly over the course of 2018. Moreover, the December-quarter data confirmed Italy is in official recession and Germany recorded zero growth (thereby avoiding the ‘technical recession’ category after contracting by 0.2 per cent in the September-quarter). Export expenditure accounts for nearly 50 per cent of Germany’s GDP – a massive proportion. It has adopted a growth strategy based on impoverishing its own residents through flat wages growth and a sustained proportion of low-paid, precarious jobs and setting its sail on sucking out expenditure from other nations (in the form of their imports). This has been particularly damaging to the Eurozone partners but also exposes Germany to the fluctuations in world export markets. Those markets are softening for various reasons (economic and political) and, as a result, German growth has hit the wall. The solution is simple – stimulate domestic demand, push for higher wages for workers, outlaw Minijobs, and start fixing the massively degraded public infrastructure that the austerity bent has starved. Likelihood of the German government adopting that sort of responsible policy. Zero to very low. There is the problem of the Eurozone from another angle. The main economy cannot play the game properly....

Bill Mitchell – billy blog
German growth strategy falters – exposes deep flaws in the EU architecture
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — Greece “neither thrived nor struggled” – the financial press alt world

It is my last blog post for the year. And we leave the year with not much gained from a progressive perspective. The mid-term elections in the US just swapped deficit-terrorist Republicans (who have been compromised by the big-spending Trump) with ridiculous PayGo Democrats, who are intent on repeating all their previous mistakes. The Brexit negotiations reveal how appallingly compromised the Tories have become and how venal the European Commission is. The British Labour Party fiscal rule shows that the next British government hasn’t yet jettisoned its Blairite past and its New Keynesian economic advisors are dogmatically taking Labour down a path it will regret. Italy has been bashed into submission by the European Commission bullies, which a week or so later, choose to turn a blind eye to France breaking the rules, because the Gilets threaten the whole show. And Germany still accumulates massive external surpluses in violation of European law and nothing happens. Happy New Year.

Bill Mitchell – billy blog
Greece “neither thrived nor struggled” – the financial press alt world
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Mark Leonard — The Coming Franco-German Bust-Up

The partnership at the center of European integration is unraveling just when Euroskeptic forces are coming together. If French President Emmanuel Macron and German Chancellor Angela Merkel cannot start rebuilding the political center, next year's European Parliament election will produce the biggest victory yet for anti-EU populists.…

Entering the endgame?

Project Syndicate
The Coming Franco-German Bust-Up

Mark Leonard | Director of the European Council on Foreign Relations

Bill Mitchell — German citizens firmly against any (even weak) federal reforms to the EMU

I don’t have much time today as I am travelling from Lisbon back to London for a series of meetings. My next public speaking engagement is on Saturday in Germany (see below). But I read an interesting report yesterday, which confirms the belief that Germany is a long way from ever permitting any wholesale reform of the Eurozone, along the lines necessary to make it functional.

The research paper – Attitudes towards Euro Area Reforms: Evidence from a Randomized Survey Experiment – was published by the European Network for Economic and Fiscal Policy Research (econPOL) in June 2018. Even a weak sort of ‘federal’ move – to implement a European-wide unemployment benefit scheme – is rejected by a strong majority of German citizens. The same respondents firmly believe a Member State that finds itself in financial trouble should not be bailed out by the other Member States but should be allowed to go broke (exit the Eurozone). 

These sort of results are consistent across time. They were present when the Eurozone was initially designed, which is why the foundations were rotten from the start. And they condition all the talk since of reform once it is generally agreed that the system is dysfunctional. Which is why we see deeply flawed changes such as the bank union and the like. It is the differences in cultures and economic structures that preclude genuine reform. And so it will always be.

The Europhile Left, who hang on to the eternal hope of eventual reform, should drop the Europhile bit and start acting like the Left....

Always comes down to Germany.

Bill Mitchell – billy blog

German citizens firmly against any (even weak) federal reforms to the EMU

Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Yanis Varoufakis — Merkel’s Comeuppance is Europe’s – and the World’s – Misfortune

Not so veiled warning that if the technocrats persist while the US acts like an imperial hegemon, the populist backlash is coming that will burn down the EU house.

While he doesn't say it, we've been here before, in the 1930s.

Project Syndicate
Merkel’s Comeuppance is Europe’s – and the World’s – Misfortune

Yanis Varoufakis

See also

The Case for Concerted Action
My Favourite Chart, Updated: Euro Area Imbalances
V. Ramanan

'The U.S. President Is Destroying the American World Order' — Mathieu von Rohr and Christoph Schult interview Joschka Fischer

In an interview with DER SPIEGEL, former German Foreign Minister Joschka Fischer talks about the danger of war against Iran, the deterioration of trans-Atlantic relations under U.S. President Donald Trump and the serious need for Germany to invest massively in the European Union's future. 

Spiegel Online
'The U.S. President Is Destroying the American World Order'
Interview former German Foreign Minister Joschka Fischer conducted by Mathieu von Rohr and Christoph Schult

RT — ‘Goodbye Europe!’ Der Spiegel Depicts Trump as Middle Finger Flipping Off EU Amid Iran Deal Tensions

RT
‘Goodbye Europe!’ Der Spiegel Depicts Trump as Middle Finger Flipping Off EU Amid Iran Deal Tensions

Bill Mitchell — Forget European reform – the Germans have anyway

Germans will be Germans, it seems — fiscally conservative.

Bill Mitchell – billy blog
Forget European reform – the Germans have anyway
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Markus Wacket and Thomas Escritt — Merkel's tougher Russia stance meets resistance in Germany

Merkel's "tougher Russian stance" is backing the US.

But the US declared sanctions also fall on Germany indirectly. Neither German business nor voters like it. Merkel is standing on shaky ground.

Moreover, Germany fought the US, UK and France in two wars in the last century.

Keep your eye on Germany.

Reuters
Merkel's tougher Russia stance meets resistance in Germany

Markus Wacket and Thomas Escritt

The Local/Germany — Millions affected as massive nationwide strikes continue into second day

Public transport, child care and hospitals were all hit by strikes in several major cities on Wednesday, as workers’ union Ver.di upped its campaign for a pay hike for public workers.

The Local/Germany
Millions affected as massive nationwide strikes continue into second day