EU Austerity Bites the Austerians

By William K. Black

You know the austerians are panicking when the temple devoted to the worship of austerity, the Wall Street Journal, runs a story with the subtitle:  “Eurozone’s Largest Economy Has Its Worries, but Isn’t on Brink of Collapse.”  We can all sleep well at night because while Germany has screwed up its economy and the eurozone economy with self-destructive austerity it “isn’t on brink of collapse.”

“August’s shocking 4% decline in German industrial production versus July doesn’t signal an economy falling off a cliff. But the outlook for Germany—and by extension for the eurozone—is far from bright.


Germany’s second-quarter gross domestic product was disappointing, registering a contraction of 0.2% on the quarter. August’s data put in question the modest rebound many economists are expecting in the third quarter. Surveys of economic sentiment have been declining: Markit’s manufacturing purchasing managers index for September entered contraction territory, at 49.9. Weaker global demand and concerns about the tensions between Russia and Ukraine are to blame. If this unpleasant mix persists, then growth seems unlikely to pick up.”

The New York Times’ coverage of EU austerity has been as bad as that of the WSJ.  I wrote recently about the fact that one of its reporters had finally admitted that “many economists” opposed austerity as a response to a recession.  My article also (gently) explained why her article was weak on the subject of austerity.  In particular, she ignored demand and the causes of recessions.  In her most recent column she discusses demand and the causes of recessions.  There are still clunky sentences that demonstrate that she is instinctively an austerian, but she is finally quoting opponents that explain why austerity is self-destructive.  It is early in the process (a mere six years late), but if the major papers continue to drift away from their cheerleading for the economic malpractice of austerity (the analog to the medical malpractice of bleeding the patient) then Germany’s war on workers’ wages and Merkel’s delight in extorting any ruling party of the left to betray through austerity its principles and ruin its economy will face vigorous opposition within the EU.

8 responses to “EU Austerity Bites the Austerians

  1. Formerly T-Bear

    Respectfully, austerity is going to bite; often, deeply and severely. This will not cease until the pain ignites the desire for change, a change that will *drive the moneychangers from the temple* kind of change. For this to become successful, another alternative must be available. That alternative will not appear out of the philosophical æther, nor will it be based upon irrational ideological grounds, neither will it omit profound connections with historical development, the genius of ancestors will not be discounted. This effort will easily surpass the cleaning of the Augean stables, mountainous shite will have to be disposed of, the edifice restored from foundation to roof beam. It may take collapse of the culture for this to be accomplished, don’t throw away the libraries, they contain the seeds from which reformation will be obtained.

    Austerity is the deadborn spawn of orthodox economic ideology that contaminates the ‘modern’ mind, a good study of that mind is contained in Philip Mirowski’s “Never Let a Serious Crisis Go to Waste, …” (ISBN 978-1-78168-079-7 Verso 2013) and an excellent description of the gardens these minds grow from can be found in Corey Robin’s “The Reactionary Mind, Conservatism from Edmund Burke to Sarah Palin“, (ISBN 978-0-19-979374-7 OUP 2011) – the introduction running some near 40 pages reads like an exploration of a defined psychological pathology. The results are well observed in Naomi Klein’s “The Shock Doctrine, The Rise of Disaster Capitalism” (ISBN 978-1-846-14028-0). Not only is this orthodoxy thoroughly corrupt, it is fatally flawed in its conception as well as its application. Not until that is unraveled to reveal the operators behind the curtain, will there be a chance to conceive the necessary alternative. The sure mark of ideology based thought is that it is incapable of self- correction. Observe current affairs closely and judge for yourself this maxim at work. Don’t pay the propagandists any mind, they are paid for their services, it is a mindset above all that requires one’s attention.

  2. Erick Borling

    Man, the denial of the obvious failures of austerity meets the layperson’s “definition of insanity.” If a %4 decline in industrial production isn’t an economic “falling off a cliff,” then my name isn’t Erick Borling.

  3. Bradley Lewis

    Yes, and if you thought the lack of learning couldn’t get worse, in today’s Wall Street Journal (p. 9 of the Eastern Edition, October 8, 2014), there’s a story entitled “German Bank Chief Knocks Stimulus Plan.”

    The first paragraph reads:

    “German Bundesbank President Jens Weidmann criticized the European Central Bank’s decision to buy private-sector bonds and chastised France for budgetary laxness, taking a hard line against new stimulus just before high-level International Monetary Fund meetings. ”

    And further on in the same article:

    “‘There is a risk of monetary policy, especially in the euro area, being held hostage by politics,’ Mr. Weidmann said in an interview conducted Monday at the Bundesbank in Frankfurt.”

    He went on to suggest that the European Commission should reject France’s 2015 budget, and the same article chronicled the efforts of French officials to “shift away from austerity and stop forcing deficit targets and austerity on governments when the eurozone economy is stuck in low growth and low inflation,” a view the story also says is held by Italian premier Matteo Renzi.

    The hostages being held now by German politics are the majority of people in the eurozone. How long will it be before they decide the eurozone would be better off either gone or with one less country?

  4. As one who lives in the EU periphery, I can not agree with an orthodox Keynesian solution to the Eurozone deflationary trend, namely that additional countercyclical monetary or fiscal stimulus is needed to jog the Eurozone out of its depression. The patient is not recovering. He is overweight with debt. I believe it makes no sense to pump him up with even more debt. How much more liquidity can he ingest?

    This has been the Eurozone’s recovery programme so far: The ECB and the bailout funds, HFSF, ESM etc. together with Mario Draghi’s “whatever it takes” policy statement, have kept Sovereign Bond yields below market-related levels since the 2010 Greek bailout; the ECB has kept bank interest rates close to zero by use of LTRO and lowering bank repo-rates; bailout programmes have pushed Eurozone periphery debt to GDP ratios above 120% and in some cases past 160%. Japan with 220% debt to GDP has failed to respond to monetary stimulus. We are in uncharted territory where Keynesian orthodoxy no longer works.

    Why is there now a need for the ECB to increase its balance sheet by a further €700 billion, buying low quality ABSs from banks and thereafter buying Sovereign Bonds in the primary markets, if the first treatment has failed to work?

    The reason, I maintain, is because Eurozone countries have simply refused to introduce structural reform. Monetary policy is being ratcheted up to compensate for the bare minimum of labour reform in the state sector. There has been virtually no axe wielded to reduce the tens (even hundreds) of thousands of supernumeraries in the bloated civil services of Greece, Cyprus, France, Italy, et al.

    It is too politically costly for Samaras, Anastasiades, Hollande and Renzi to alienate the most highly unionised and largest voting block in their countries, the civil servants, by cutting staff. Civil servants have in most cases been appointed election after election to reward party loyalty or to hide job-losses in the private sector (Gordon Brown extended this sleight of hand by conflating the 2.5 million unemployed with those on disability benefits). The leaders of the periphery are eyeing the results of the next election, not the recovery of their economies. Holland with a 13% popularity rating has already infuriated the left with his pro-business reversals: he will not want his ratings to fall any further.

    France and Italy are not being honest. They are too weak to stand up to union pressure and cut government salaries more radically, or fire government workers and push them into lower paying social security programmes for the unemployed, so they are claiming the ECB has been too austere with its stimulus packages.

    Civil servants in the periphery countries are grossly overpaid (Italian government barbers have had their salaries slashed to €99 000 per year ) and chronically unproductive. Reams of bureaucratic red tape are strangling already struggling businesses. Registering a business startup in the periphery can take up to six months.

    The pensions of state and EU bureaucrats are often double those in the private sector. In most cases, countries like Greece have been appropriating social security payments into current expenditures and are facing massive and growing pension black holes.

    The governments of France and Italy must find the courage to trim the useless fat from their economies before they hold out their begging bowls to the core nations of the Eurozone. It will just prolong the day of reckoning if Angela Merkel bows to the pressure of lobbies of overpaid and unproductive workers in France and Italy.

    • Erick Borling

      Travis, you are incorrect in pretty much everything you said, and a victim/perpetrator of the prevailing mythology. Spend time listening to and reading the experts here at NEP before parroting that nonsense. The experts are L. Randall Wray, Warren Mosler, William K. Black, Billy Mitchell, Steve Keen, Pavlina Tcherneva, and Michael Hudson. I suggest you start with the Columbia Law school lecture on the Eurozone on the youtube channel “ModernMoneyNetwork”
      As for readings, L. Randall Wray’s MMT: A Response to Critics, is essential learning. Use search techniques on the NEP site to find good information on the Eurozone situation.

      • ray lapan-love

        Instead of addressing the very real concerns that Travis brought up, concerns that are shared by a long list of reputable economists, Fin Mins, and etc, you simply drop some names and throw some insults. It seems too that Travis is suggesting that top-down stimulus is not working, which I suspect is something that you would agree with, and so why not argue something specific?

        • I speak plainly and do not insult people. Opinions and ideas are all fair game, I am merciless with my own, even. If a commenter’s self-esteem rests on whether their ideas are correct or not, that is their problem. Unfortunately I also don’t have the time or skill to deconstruct writings such as Travis’, as I’m not an economics teacher, but the individuals I mentioned are very good at it. So, I gave a really good referral; and that’s a meritorious gesture. I stand by my recommendation that he spend time with the MMT basics on this site. As to “reputable economists” holding the prevailing view that he espouses, that defense simply won’t work here. Thanks for your feedback.

  5. How else are the 1%ers going to drive businesses into the ditch so they can takeover companies for a pittance (or destroy competition) if not through austerity?