Friday, August 21, 2009

Is the Recession Over in Europe?

The recession is over in Europe. That's what much of the American and European financial media is declaring. Unlike most industrialized nations in the world, Germany and France actually experienced economic growth during the last financial quarter. That fact, combined with the announcement last week by Eurostat that the Eurozone economies only declined by 0.1% quarter-to-quarter, has many feeling that the recession is on its way out and a recovery is here for Europe.

Are they right? Writer Ulrich Rippert of the World Socialist Web Site says 'no.'

I'll begin with this interesting tidbit:

At the same time there are voices warning of undue optimism about an economic recovery. In its latest edition, the weekly Die Zeit writes: “‘Recovery at last! Investment bankers establish upward trend,’ reads the New York Times. ‘Further progress in the business world,’ reports the Wall Street Journal. ‘Economists see signs of a recovery.’ ‘Powerful rise on the stock markets,’ report others... The headlines appear to come from August 2009. In fact, they are from the year 1931. They were published in the midst of the Great Depression in the US, i.e., in the blackest economic epoch of the 20th century.
This echoes something I've said before: prolonged recessions/Depressions bring about extreme market volatility. The Great Depression bore witness to some of the biggest stock rallies in history. A growth in stock prices, especially an extremely rapid one, does not necessarily indicate that the economy is actually in recovery. It might indicate such a thing, but it is not a given, yet the media is treating it as a given. The reality is that this kind of historical precedent (the experience of the Great Depression) is pretty much impossible to factor into the statistical models that today's investors, analysts and economists employ. Their field of vision is much more narrow. And that's the problem ... understanding the historic point in economic history we're at right now requires a panoramic lens, so to speak.

Rippert continues:

In these declarations there is a combination of self-delusion and calculation. The politicians and financial players have a vested interest in promoting a mood of euphoria to sustain the heady rally on global stock markets. However, there is little in the actual economic situation in Europe and internationally to justify such optimism.

The minimal economic growth reflected in the latest data should come as no surprise, given the manner in which governments across Europe have opened up their treasuries to bail out the banks. Hundreds of billions of euros in public funds have been placed at the disposal of the major financial institutions, without any demands being placed on the banks or a single one of the bankers responsible for the crisis being held accountable.

Not only have the banks dictated their own rescue packages to their respective governments, they have profited handsomely from the process. The billions turned over to the banks are being used as a pool for further speculation, while bailed-out banks impose high interest rates and fees on governments seeking loans to cover their ballooning debts.

The financial elite regards the crisis as an opportunity to dismantle, with the collaboration of the trade unions, all that remains of the social gains won in the course of decades of struggle by the working class.

Nothing surprising here. Europe mirrors the U.S. in a lot of regards. Its interesting to see a self-declared socialist web site criticize trade unions. In the U.S., I disagree that the trade unions are serving to "dismantle" the position of the working class. First off, most blue collar workers are no longer in unions to begin with. Secondly, the trade unions were actually the primary opponents of Governor Schwarzenegger's budget in California. With that being said, I would agree that the unions aren't really playing much of a big political role or offering up anything new in terms of where the economy should go. That's a big difference from the 1930s.

What is the underlying economic reality? Compared to one year ago, the German economy has declined by no less than 7 percent. In a few months, the German “cash for clunkers” scheme will expire, accelerating the decline of the country’s auto and auto-supply industry. The consequences for the German steel, engineering and chemical industries have already been felt.

Up to now, mass redundancies in Germany have been avoided by means of a reduced work-hours scheme, which has been renewed several times. When the 1.4 million employees on short-time work eventually join the ranks of the unemployed, the official unemployment level will rise to 5 million.


The constitutional “brake on debt” which was recently passed by the German parliament means that the first priority of any future government will be drastic budget cuts. The promises being made by all of the parties taking part in the national election campaign will be consigned to the waste bin as soon as the votes have been counted on September 27.


A glimpse of what is to come was provided by the so-called “Guttenberg Paper,” which was made public just a few days ago. The document, bearing the title “Proposals for a Sustainable Industrial Policy,” was commissioned by German Economics Minister Karl-Theodor zu Guttenberg and lists some of the savage measures which business lobbies are demanding in response to the crisis. Similar measures to those outlined in the “Guttenberg Paper” are already been prepared by the appropriate ministries, but there is an agreement amongst the various political parties that no one raise such themes in the course of the election campaign.

The Frankfurter Rundschau reports that the 52-page document calls for “tax relief for businesses,” “the reduction of supplementary wage costs,” and “increased flexibility in the labour market.” The document urges a weakening of job protection provisions, limits to sick pay and the scrapping of proposals for a guaranteed minimum wage.

Interesting. In short, the German state is basically expending all of its resources to hold up the economy. Even then, the economy is barely above water. It appears that Germany is already on track to experience what California is already facing today ... massive government budget cuts and an end to the various subsidies and measures by which the state propped up the economy. Last week I commented on what awaits places like California and Ireland where the government sector and state welfare policies have been drastically reduced ... and the picture ain't pretty.

I haven't really explored the World Socialist Web Site very much, but I thought this was a pretty good article. It certainly offered one of the best rebuttals to the claim that its all smooth sailing for the European economies from here. In actuality, we can see that they still face a lot of hardship.

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