One reason a lot of people will vote for the upcoming “austerity amendment” is that they assume it must, when it all comes down to it, be good for us. Sure it’s going to hurt, but in the long run it will help us have a stronger, better economy – right? It’s a natural assumption. And it would be dead wrong. The wholesale destruction of government spending if we succeed in making its insane deficit-slashing timetable – or the fines if we fail – will shrink the economy precipitously. Disastrously.
But why would the EU want to do that to us? It’s puzzling, but it’s not out of any personal animosity. We are but a small cog in this, and we don’t squeak half enough. It’s just that it’s a one-size-fits-no-one set of strictures that would burden even the healthiest European economy.
The Fiscal Compact has two main objectives. The more obvious one is to outlaw the sort of behaviour that got Greece into trouble – essentially, excessive public borrowing and spending. But note that that’s absolutely not what we did. We were good. We paid back debts when we had the money, we ran a surplus. And though our public spending rose, the highest it ever went was still only the Eurozone average. Very arguably we should have been spending well above that, our public services were still grossly underdeveloped even at the height of the boom. Yet this referendum will have the effect of cutting public spending more drastically than ever. And aside from hurting our most vulnerable, that will of course crush the economy even further. As I said a few days ago, it is the cure for the opposite disease to the one we have.
The second and more covert purpose of the compact though is, putting it as crudely as it deserves, to save Angela Merkel’s political future. In order to win her next election – she has about a year and a half left to go – she needs to convince the German people… Not that the Euro is good for them, no. That’s not enough. That the Euro is the Deutsche Mark. A currency run to Germany’s peculiar rules, for Germany’s peculiar circumstances.
Which are peculiarly set against Keynesian economics, the (well-proven) theory that the best thing a government can do in times of economic depression is borrow and spend to promote recovery. This technique lost favour in Germany essentially because it was employed by Hitler. In the Post-War era a new orthodoxy was needed, and they found it in “Ordoliberalism“, a system in which government must play only the most minimal role. It has worked for Germany so far, but Germany has been in almost continuous growth since it started. That might seem a recommendation, but ordoliberalism is a theory for the good times, utterly lost when facing a crisis of these proportions.
It seems likely that only the introduction of the Euro averted the failure of the German system. From being overburdened by the costs of Reunification with the post-Communist East, Germany went rapidly back to being the richest and most productive economy in Europe. Essentially, by selling more goods than ever before to the rest of Eurozone – while simultaneously lending us the money to buy them.
Germany had become Europe’s company store.
It is worth noting that Merkel’s approval rating is at an all-time high back home. She’s getting to project herself as tough by beating us up. So why is Enda Kenny agreeing to this? Is there some secret backroom agreement where he gets to be her bitch now in return for favours down the line? It’s the only way you can make sense of his apparently acting against the country’s interests. But we can’t depend on the existence of covert deal. Even if it exists, it can so easily be repudiated. And in return we are being asked to write vows of poverty into our own Constitution.
If this referendum passes, the best thing you could do would be to get out of the country as soon as you can. And be sure to bring your more vulnerable relatives with you.
- Positive No (i.doubt.it)
- Europe’s governments turning against austerity measures (pri.org)
- Hollande’s ‘Growth Bloc’ spells end of German hegemony in Europe (telegraph.co.uk)
- Why Berlin is fixed on a German solution to the eurozone crisis | Ulrike Guérot and Sebastian Dullien (guardian.co.uk)
4 replies on “The Company Store”
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How much of the current situation is just a consequence of strings of dumb/short-term decisions? Because I don’t really think Germany ever planned on the current situation. Germany might be sitting prettier, right now, but it’s definitely at risk of the whole Europe-wide financial shenanigans too.
Oh no of course I don’t mean to suggest that Germany engineered the current situation for its own benefit. I do believe that there was a certain amount of “not looking a gift horse in the mouth” short-termism when the Euro was benefiting the German economy in an unsustainable way and money was appearing as if by magic during the early-mid 2000s, but if anything we were even more guilty of that.
It is obvious now that some fairly drastic measures need to be taken. My problem is that these particular measures are, in part at least, politically inspired and therefore excessively simplistic, and would be horrifically counterproductive for our economy now. Crudely it’s a neoliberal cure for the excesses of neoliberalism.
[…] The way to break that cycle would be to borrow and spend as soon as possible to stimulate growth; classical Keynesianism. The IMF – or of course commercial lenders – would have no ideological objection. The Fiscal Compact however requires that, with some leeway for cyclical fluctuation only, governments borrow no more than 0.5% more than income. In other words it bans Keynesianism in perpetuity, for no better reason apparently than German mistrust of it (as I discussed here). […]