Under the German Whip (II)

BERLIN/PARIS | | frankreich

BERLIN/PARIS (Own report) - A new controversy over Germany's austerity dictate has flared up on the eve of the Wales NATO summit. At the occasion of a high-ranking meeting last week, the President of the European Central Bank (ECB) Mario Draghi, characterized Berlin's austerity policy as fatal. However, the German chancellor immediately rejected his call for a change. The French minister of the economy was forced to resign, because of his public criticism of the austerity dictates, which, since the beginning of the year have aggravated the crisis in France. At their recent annual meeting, numerous Nobel Prize laureates for Economics warned that even though forced austerity will provide short-term profits for Germany, it will inevitably push the Euro zone into a depression. According to the laureates, even the demise of the common currency cannot be ruled out. Observers are predicting strong protests, at least in France, against Berlin's austerity dictates. In spite of the uncertainties of the EU's internal development, NATO's European members are planning to adopt aggressive military measures at the upcoming NATO summit.

Deflationary Spiral

A controversy over Germany's austerity dictate in the Euro zone has again flared up over the past few days. At last week's high-ranking meeting of central bankers in Jackson Hole, USA, ECP President Mario Draghi warned of falling inflation. The Euro zone could even be drawn into a fatal deflationary spiral. This is why Draghi made a plea for "a more growth-friendly composition of fiscal policies," particularly more flexibility in applying austerity measures, as well as tax-cuts and a multi-billion EU investment program.[1] These warnings outraged Berlin. According to press reports, Angela Merkel called Draghi and demanded an explanation. For Berlin, renouncing the austerity policy is out of the question.

"Raise the Tone"

The French government was reshuffled last week, as a result of the persisting controversy over French subordination to Berlin's austerity dictate. In France, criticism has been growing louder, ever since President François Hollande perpetuated France's economic crisis with the multi-billion Euro austerity program,[2] he announced, under pressure of Berlin, early in 2014. Only the dividends of shareholders are experiencing an upswing, according to observers. Minister of the Economy, Arnaud Montebourg, who was forced to resign, declared in a newspaper interview that one should "draw the line." "If we align ourselves with the most extreme orthodoxy of the German rightwing, this will mean ... that French people, even though they voted for the Left, they, in reality, will be voting for the adoption of the German rightwing program." He called for finally "raising the tone."[3] Following his declarations, the government no longer wanted Minister Montebourg to remain in office. As commentators have concluded, "he was sacrificed for the sake of Germany."[4] "You need ministers, capable of speaking to trade unions, employers and Germany," the director of the Cevipof think tank is quoted to have said.[5]

Japan's Lost Decades

A few days ago, exceptionally sharp criticism of Germany's Euro zone austerity dictate was expressed at this year's annual Meeting of Nobel Laureates for Economics in Lindau. At the meeting, Joseph Stiglitz, 2001 Nobel Prize laureate, warned of a dramatic downward spiral. "The introduction of the Euro has created a system of instability, with the consequences that the weaker states become still weaker and the stronger, still stronger," says Stiglitz. "That is fatal."[6] Because of the German hard-line austerity course, we are risking "years of depression that will even overshadow Japan's lost decades." The EU will also have to confront "the economic consequences of geopolitical frictions" - referring to the consequences of sanctions on Russia and Russia's counter-sanctions.[7] According to reports, many of Stiglitz's colleagues are in agreement with his criticism. Berlin, "pursues a completely flawed policy in Europe," explains Eric Maskin, 2007 laureate. "Its prescribed austerity plan will plunge the Euro zone into a depression."[8]

The Costs of Unemployment

Some of the economists in Lindau are even beginning to doubt whether the Euro will be able to survive. "With the Euro, I cannot imagine any real upswing in the Euro zone," James Mirrlees, 1996 laureate, is quoted saying. "Many have argued that the downfall of the Euro would ruin the banking system and therefore be incalculably expensive," says Mirrlees, "they have forgotten that the economic costs of unemployment must also be included in their calculation."[9] And they are enormous. In fact, unemployment is only relatively low in the countries benefiting from the Euro zone crisis, particularly Germany (6,7 percent, youth unemployment: 7.8 percent.) In the countries hardest hit, it has risen to 24.5% (Spain) or 27.3% (Greece). Youth unemployment is even as high as 22.4 (France), 23.2 (Ireland), 33.5 (Portugal), 43.7 (Italy), 53.5 (Spain) or 56.3% (Greece). "Youth in Spain and Italy (...) will suffer for decades because of it," predicts the 2010 Laureate, Peter Diamond, who points to the fact that entire generations will lack the decisive early job market experience. "If I were a political advisor in Greece, Portugal or Spain, I would advise these countries to work out emergency plans for leaving the monetary union," said the 2011 Laureate, Christopher Sims.[10]

Social Unrest

While all warnings against the austerity dictate have so far bounced off Berlin without any effect, observers have been predicting the possibility of an impending rise in protests against the austerity policy. The intelligence service-affiliated US think tank, Stratfor, has registered "growing political and social unrest in France," where, not only "a larger part of the French establishment will push for a more direct challenge to Germany's EU leadership." This has become clear in last week's dismissal of France's Minister of the Economy, Montebourg. However, "a significant increase in social unrest" cannot be ruled out. "France already saw several protests and strikes this past winter," notes Stratfor, which it predicts could "return to France late this year and in early 2015." Stratfor considers that "the length and depth of this new wave of unrest" will "be more crucial to France's political future than any imminent government reshuffle."[11]

On Shaky Ground

These warnings are coming at a time when NATO's European member countries are preparing to take decisions on aggressive militarist measures at their war alliance's Wales summit These plans will, at least here in Europe, be built on shaky ground.

[1] Draghi drängt auf Sparkurs-Lockerung: Die Rückkehr der Euro-Angst. www.spiegel.de 27.08.2014.
[2] See Le modèle Gerhard Schröder.
[3] Arnaud Montebourg plaide pour un changement de cap économique du gouvernement. www.lemonde.fr 23.08.2014.
[4] Pascal Ordonneau: Montebourg a-t-il été sacrifié à l'Allemagne? www.lefigaro.fr 27.08.2014.
[5] Christian Schubert: Frankreichs Reformer sind am Zuge. www.faz.net 26.08.2014.
[6] Der Euro muss weg für Europas Aufschwung. www.welt.de 21.08.2014.
[7] Nobelpreisträger geißelt deutsche Euro-Politik. www.welt.de 20.08.2014.
[8] Nobelpreisträger rechnen mit Merkel ab. www.welt.de 24.08.2014.
[9], [10] Der Euro muss weg für Europas Aufschwung. www.welt.de 21.08.2014.
[11] Hollande Orders a New French Government. www.stratfor.com 25.08.2014.