Tag Archives: eu

EU Decides Not to Target Investments to Help Nations It Forced into Great Depressions

By William K. Black
Quito:  March 10, 2015

Sometimes there’s a news story that captures the madness perfectly.  The latest is by Rebecca Christie and Rainer Buergin in Bloomberg entitled “EU Backs Investment Plan With Pushback on Help for Hardest Hit.”

“European Union finance ministers agreed to press ahead with a proposed 315 billion-euro ($338 billion) investment plan, while reminding crisis-hit nations that it won’t offer them special assistance.”

The numbers in the EU’s supposed “investment plan” are a grossly inflated public relations effort.  At first blush, the plan is simply a way of subsidizing huge, private firms to increase their profits.  When we look more closely we can see it is actually malignant.  The public funding, relative to the EU’s overall need for investment is deliberately trivial.  Relative to the private firms that the EU will subsidize with those funds, however, the EU public funds represents a 6.67% subsidy.  That is a material addition to corporate profits.

“[EU Commission President Jean-Claude] Juncker’s plan envisages using 21 billion euros of EU seed money to mobilize 15 times as much investment in cooperation with private investors. To gain financing help, projects must show private-sector backing and evidence that they will offer a return on investment.”

Juncker is notorious for his long-standing role in turning Luxembourg into the “magical fairyland” by implicitly creating enormous subsidies for large foreign corporations through secret deals to dramatically reduce their taxes.  He is ultra-conservative, one of the most virulent of the troika’s austerity supporters, and a fierce proponent of the troika’s war on EU workers.  His selection as head of the EU Commission demonstrates the ultra-conservative domination of that body.

At one level, Juncker’s plan is only a modestly clever propaganda gambit.  The EU spends virtually nothing but is credited, e.g., in the first sentence of the Bloomberg article, with a “315 billion-euro investment plan.”  This makes it sound as if the plan, while grossly inadequate, is at least not a farce.

The initial obvious question is why the EU does not give direct aid to those in the greatest need, which would provide them with the ability to increase their expenditures to purchase the goods and services they most need.  This would raise effective demand and cause manufacturers to increase production, which would lead them to hire workers and reduce unemployment.  It is more costly, more inefficient, and more unjust to subsidize for-profit firms to make “investments.”   Major corporations are sitting on piles of cash in an amazingly low interest rate environment in which (under Juncker’s own economic theories) the “hurdle” rate to make a productive investment should be at a modern low and new productive investments as a percentage of GDP should be at an all-time high.  The troika implicitly created a massive subsidy for the liability-side of corporate balance sheet – by reducing the interest rates corporations must pay to borrow funds nearly to zero.  Juncker’s plan adds a material (6.67%) subsidy to the asset-side of corporations’ balance sheets.

On its face, the Juncker plan, therefore, is a disgrace.  It expands the troika’s shameful corporate welfare policy while refusing to aid the 100 million EU citizens in Spain, Greece, and Italy (roughly one-third of the EU’s total population) who live in nations unnecessarily forced into Great Depression levels of unemployment by the troika’s insistence of inflicting austerity on economies already suffering from inadequate demand.  It is also designed to be a stealth privatization program.  Private companies will end up with majority ownership of vital infrastructure such as roads, tunnels, and bridges.

The EU leadership’s continuing, stunning indifference to the citizens of the EU suffering from the troika’s economically illiterate “bleeding” of already sick economies is triply exposed by the Juncker plan.  First, the plan is yet another provision by the EU of corporate welfare to for-profit corporations through public subsidies rather than the EU’s citizens who are suffering the most.  Second, the firms that are the recipients of this corporate welfare will not be targeted so as to help the EU citizens most in need.  Third, the recipients of the corporate welfare are allowed to increase unemployment instead of reducing it.  They are free to use the public subsidy to help fund investments that will result in the corporation firing large numbers of workers even if those workers are in nations already suffering Great Depression levels of unemployment.  .

The express decision, over the protests of many of the EU’s smaller nations with the greatest needs for increased infrastructure investments, to refuse to target the investment to the nations with the greatest need tells you nearly all you need to know about what Germany and its ultra-conservative allies’ oxymoronic definition of the word “union” when they conceive of the “EU.”  The other thing you need to know is that the EU has been the most aggressive and economically illiterate member of the troika It takes stunning economic malpractice to gratuitously force Spain, Italy, and Greece into Great Depression levels of unemployment – nearly seven years after Lehman’s bankruptcy triggered the initial collapse.

It isn’t simply that Juncker deliberately crafted his plan to ensure that investment funds were not made available wherever possible where they were most needed.  As the Bloomberg authors report, the EU’s hard-right leadership expects the overwhelming bulk of the public funds to (1) go to subsidies for wealthy, large corporations in the wealthiest EU nations and (2) expects the infrastructure projects funded to be disproportionately built in the wealthiest EU nations.

Juncker’s Plan Opens a New Front in the Troika’s War on Workers

Read carefully the EU leadership’s own words explaining why and how it deliberately designed the “investment plan” to ensure that it would not direct aid to the citizens of the EU who are suffering the most from the EU’s infliction of self-destructive austerity.

“EU Commission Vice President Jyrki Katainen said the plan must resist pressure to steer help to needy regions or nations. Such quotas are ‘exactly what we have wanted to avoid’ when designing how the plan could offer loans or guarantees to spur private investors, he said.

‘It’s up to the member states to create the right certainty and surrounding for investment,’ Katainen said. ‘No one can co-finance investment if there is no private company who would like to invest in some particular country.’”

The quoted passage constitutes an admission by the EU leadership that their “investment plan” isn’t a public investment plan.  Indeed, they admit that their paramount priority in designing the Juncker plan.  It was drafted “exactly” to ensure that it did not “steer help to needy regions or nations.”

We must decode the phrase “no one can co-finance investment if there is no private company who would like to invest in some particular country.”  The EU “investment plan” is the “carrot” designed to induce right-wing political leaders of the EU periphery, in league with corporate allies, to use a bigger “stick” against their workers.  If, and only if, the nations of the EU periphery makes it far easier to fire workers without cause, to slash their pay and benefits, and to increase their taxes will they find “private companies” who will take the EU subsidies and invest in the nation that “wins” the race to the bottom of workers’ wages and rights.  The Juncker plan is only the latest in a long line of troika demands that, cumulatively, were crafted to extort EU workers to engage in a competitive race to cut wages in order to attract investors and expand exports.

But the Juncker plan has related, subtle advantages in pursuing the troika’s war on the workers.  Consider the arguments that the ultra-conservative coalition dominating the European Commission made in favor of Juncker’s latest corporate welfare plan.

“Germany, the Netherlands and the U.K. led calls for the plan to resist political influence so the fund could seek out projects that are most deserving of help.”

The return to dominant power of the (oh so aptly named) modern “Juncker” class of wealthy, landed aristocrats, is so advanced that Juncker and his allies publicly deride the concept that EU decisions might be made by democratic means – “political influence” over public expenditures must be “resist[ed].”  And they control the European Commission, the place where that “political influence” would have to be successful!  Even in a chamber in which they are dominant the Junckers fear having to defend in the European Commission their corporate welfare plan designed (1) to ensure that it did not go to the EU citizens most in need, and (2) to intensify the war on workers.

The revived Juncker-class has brought back the concept of the “deserving” poor and unemployed, as distinct from the undeserving.  And what a convenient concept it is, for the “deserving” nations will be chosen by the private, for-profit recipients of Juncker’s latest corporate welfare.  (Pause to recall that Juncker does not require the firms receiving his latest form of corporate welfare to be “deserving.”)  The corporate welfare recipients will (under the Junckers’ own theories) invest in the nations whose war on their workers is most successful in driving down wages, for that will maximize their profits.  The corporate welfare recipients’ political cronies will have great deniability.  They, after all, did not decide that the subsidized investments would go to those least in need.  If the investments do not go to Greece, for example, the revived Junckers are asserting in advance that this will prove that the Greeks are “[un]deserving.”  To become “deserving” a nation must be a leader in the intensity of its war on its own workers.  The EU leadership has made this clear:  “It’s up to the member states to create the right certainty and surrounding for investment.”  That “right certainty and surrounding” is code for winning the war against the workers’ wages and rights.

And the EU Adds a Lagniappe to the Corporate Welfare Queens

There is a tradition in New Orleans restaurants to add an unexpected treat to the diners’ meals, a lagniappe.  Juncker knew the perfect little something extra that corporate welfare queens would most appreciate – relaxing those pesky laws against cartels that so upset criminal CEOs.

“The Brussels-based commission will aim for a ‘light touch’ when it considers how to apply the competition rules, Katainen said.”

“Light touch” is an EU euphemism for allowing elite white-collar criminals to commit their crimes with impunity.  The phrase was made infamous in the run-up to the financial crisis.  The infamous three “de’s” – deregulation, desupervision, and de facto decriminalization became so extreme due to the regulatory race to the bottom that finance became an exceptionally criminogenic environment.  “Light touch” was a major factor creating the most destructive financial fraud epidemics in history – the epidemics that drove the financial crisis in America and the eurozone.  The Juncker plan, of course, is being promoted as a (sloth like) response to the crisis made possible by “light touch” invitations for corporations to commit crimes with impunity.  Naturally, Juncker decided that the solution was to gut enforcement of the anti-trust laws and invite (via “light touch”) publicly-subsidized for-profit corporations to conspire together to form cartels.  To Juncker, corporations are “deserving” of public subsidies, government wars on workers’ wages, and the ability to commit crimes with impunity.  The unemployed are undeserving parasites.

Greece wants to save Europe, but can it persuade Europeans?

By Pavlina Tcherneva
Cross posted from aljazeera.com

Most analysis of the Greek debt crisis ignores an important reality: While Greece may be the villain du jour, every eurozone nation is profoundly short of cash. That’s because of a well-acknowledged, but not fully appreciated, flaw at the heart of eurozone financial architecture that converted a historically unprecedented number of nations from issuers of their own currency to users of a common currency.

Greece is simply the first country to experience the extreme consequences of that loss of monetary sovereignty. With no independent source of funding, no currency of its own, no central bank to guarantee its government liabilities, it has had to ask others for help. And as a condition for securing that help, Greece has until now been forced to consent to radical austerity policies.

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Jobs for Greeks

By L. Randall Wray

With Syriza in the driver’s seat, Greece now has some hope for the end to austerity imposed by Germany and the Troika.

Here’s a good short piece by C. J. Polychroniou, a research associate and policy fellow at the Levy Economics Institute. As he explains, what Syriza wants is no more—and no less—radical than what the USA did in the 1930s to deal with its Great Depression: “the bulk of Syriza’s economic program for addressing the catastrophic crisis in Greece, which has evolved into a humanitarian crisis, is inspired by President Franklin D. Roosevelt’s New Deal programs”.

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Syriza Wins in Greece: NYT and WSJ Still Get Their Re-Writes Wrong

By William K. Black
Bloomington, MN: January 26, 2015

I wrote a column Sunday, January 25, 2015 as the Greek election results became sufficiently clear to know that Syriza was receiving a strong plurality from the voters and as the New York Times and the Wall Street Journal posted on their websites the first reaction news columns. I criticized the dishonest nature of both paper’s coverage (actually non-coverage) of what austerity inflicted on the Greek people. Both of those initial columns have now been modified, so I have looked to see whether they improved their candor in their re-writes. The updated NYT column still contains this clunker.

“Syriza’s victory is a milestone for Europe. Continuing economic weakness has stirred a populist backlash from France to Spain to Italy, with more voters growing fed up with policies that require sacrifice to meet the demands of creditors but that have not delivered more jobs and prosperity.”

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QE is Europe’s “Last Best Hope,” – If One Ignores the First, Best Hope

By William K. Black
Bloomington, MN: January 23, 2015

It’s the curse of the commentator on commentators. I recently wrote nice things about Neil Irwin’s New York Times column about the Eurozone. On January 22, 2015, he wrote a column about the ECB’s adoption of quantitative easing (QE), that claimed it was “last, best hope” for the Eurozone. In fairness to Irwin, his column contains plenty of skepticism as to whether QE is even a poor “hope” for the Eurozone. Irwin also has the right quotation from Mario Draghi, the head of the ECB.

“Mr. Draghi acknowledged that it would take more than an open spigot of money from the central bank to get Europe’s economy on track, and that political authorities across Europe must act as well. ‘What monetary policy can do is to create the basis for growth,’ he said at a news conference in Frankfurt. ‘But for growth to pick up, you need investment. For investment, you need confidence. And for confidence, you need structural reforms.’”

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The “Magical Fairyland” of Corporate Tax Scams

By William K. Black

I’m in Kilkenny, Ireland where Kilkenomics V begins tonight. Kilkenomics is the economics festival in which economists and professional comedians combine to produce a blunt presentation of issues involving economics that have enormous effects on our lives. One of the traditions of Kilkenomics is that the travesty of some act by the Troika (the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission (EC)) is revealed just in time to kick off the festival. This year, the Troika produced a double-barreled blast. First, the ECB’s November 2010 letter extorting the Irish government to inflict austerity and produce a second Great Recession in Ireland was leaked.

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EU Ideologues “Crowd Out” Sanity

By William K. Black

It is often the small things that best illustrate insanity.  On October 13, 2014, EU Economic and Monetary Affairs Commissioner Jyrki Katainen spoke to emphasize one message:

“[The EU’s leaders] ‘don’t want the [European Investment Bank] EIB crowding out private investment.’  He said the EIB should be used to leverage money from the private sector, ‘and play a part in big infrastructure projects,’ notably ones that have been delayed.”

It’s helpful to situate this smaller example of economic insanity within the broader context of the insanity of austerity inflicted by those same EU leaders.  The general insanity is that the EU politicians are the most economically illiterate and extreme member of the troika.  I just wrote a column explaining that they are bitterly attacking Mario Draghi, the head of the European Central Bank (ECB) for (in their warped interpretation) becoming apostate on the subject of austerity.  The IMF, at least many of its professional economists, left the one truth faith of the austerians long ago when it began publishing research showing that fiscal stimulus was a great success and even its leadership began to warn against austerity. 

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Germany Demands Greater Austerity Because Three Recessions in Six Years are not Enough

By William K. Black

Things are going badly in the eurozone – as they have for six years due to Germany’s demand that “there is no alternative” (TINA) to austerity as the response to the Great Recession.  Austerity caused a gratuitous second Great Recession throughout the eurozone and threw nations with one-third of the eurozone’s total population into Great Depression levels of unemployment.  Austerity has now forced Italy into a third recession in six years and produced overall stagnation in the eurozone.  Germany, whose budget surplus has produced economic stagnation, has found a solution to the latest crisis caused by self-destructive austerity – greater austerity.  Better yet, as a Reuters column relates, Germany’s leaders are enraged that anyone would dare to question why it makes sense to reduce further already inadequate demand through austerity.

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EU Austerity as Frat House Hazing

By William K. Black

The European Union (EU) is stagnating because of austerity.  Austerity in response to the Great Recession has already, gratuitously, forced the eurozone into recession and roughly one-third of its population live in nations with Great Depression levels of unemployment.  Austerity has now thrown Italy into its third recession in six years and may well do so in France.  One might think that even the troika would respond to this track record of failure and anguish by deciding to stop smashing the eurozone’s economy with the hammer of austerity.

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The New York Times Admits that “Many Economists” Criticize EU Austerity

By William K. Black

Under the principle that one should bestow a special welcome on the tentative steps that the prodigal daughter takes to return to economic reality I write to praise Liz Alderman’s column entitled “France Produces a “No Austerity’ Budget, Defying E.U. Rules.”  The column contains a sentence that represents a breakthrough in the New York Times’ horrific (non) coverage of Eurozone austerity, its abject failure, its self-destructive nature, and its victims.

“But many economists believe that crimping spending during a downturn has impeded economic growth, which in turn has made it harder for those countries to reduce their deficits and debts.”

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