Europe’s “Hope Ceiling”



Stournaras_Schaubleu

By Ioannis Patrikakis* The current state of affairs in the Euro zone clashes with the basic principles of Aristotelian Ethics philosophy. Aristotle is describing a “flourishing state of the mind,” (Evdaimonia), as the perfect aspiration for all human beings.

After the Greek bond bubble ended chaotically in 2009 and the irresponsible former Greek finance minister–George Papakonstantinou–stated publicly that the Greek economy was sinking like the titanic, a part of the German Political elite imposed an unproductive era in the history of Europe; a new era of extreme austerity for many of its European Partners which cannot be sustained by facts, logic and economic science, but only via a political power game.

Schauble rejects a Greek bond haircut

Wolfgang Schauble is the Architect of extreme austerity which is a blend of Economic policies that deprives of the real economy of an indebted Country like Greece, any chance of growth by not providing the essential liquidity needed for businesses and households to operate productively. This creates a death spiral for any economy because the violent reduction in total demand creates Unemployment and reduces real incomes. This in turn creates a problematic banking sector because loans cannot be serviced by the deeply hurt real economy. In addition, Government revenues collapse and the national debt becomes unsustainable. The hubris is completed with the imposition of new unfair taxes to the extent that one cannot achieve his economic aspirations that provide psychological security, emotional fulfillment and a sense of hope for the future.

An economic crisis in Europe is turning into a humanitarian one for some of its members, as the substantial reduction of real incomes has created third-world unemployment, economic depression; bankruptcies for businesses and households; political instability; social division; family tragedies, and above all the absence of hope for the future.

The current problem with Europe’s monetary union, is that Germany seems to be indirectly gaining an absolute competitive advantage in the form of a depreciated currency and cheap credit from the markets, by creating a new euro zone business model that favors only the Germans in the short run, and will inevitably lead to the destruction of the euro zone sometime in the future. Germany’s surpluses after 2001 illustrate the beneficiary effect of the euro on the German Economy. Germany is able to sell its quality cars and products for 1.35 versus the USD instead of 1.80-2 if the Deutsche Mark was the case.

234Source: Paul Krugman

While the German stock market is trading near an all time high, the rest of the euro zone is being infected with the austerity virus that is impairing the fundamentals of the European and the world economy. The last victim is France as data showed a surprising drop of the French Gross domestic product which fell 0.1% in the third quarter from growth of 0.5% in the previous quarter. Germany will soon feel the pain of its own policies as it still exports 57% of its products to the rest of the weakened Euro zone members. It is already showing slower growth this quarter, 0.3% VS 0.7 % in the previous quarter.

The new government that will be formed in Germany has a chance to restore the hope and the confidence in Europe’s vision if the German political elite reduces its egoism and focuses in designing policies that aim at full employment and Economic Growth for the entire euro zone. These policies must use financial innovation as a major tool to create effective credit products that will inject the necessary liquidity into the real economy of indebted countries like Greece, Italy and Spain in order to reduce unemployment, increase total demand and expand business activity.

In Greece 60 billion euro of non-performing loans have accumulated. The real economy is suffocating with high taxes and zombie banks cannot support the economy. An immediate stimulus is needed to inject at least 25 to 30 billion in to the real economy or else the government will collapse in the following months having a fragile majority in the Greek parliament. The troika proposed that the pharmaceutical spending should be cut more, and that the appropriate cost for every Greek would be to spend 45% less than the European average. This will of course create shortages in medicine, but at the moment troika focuses more on the numbers rather than the life-expectancy and the health of the Greek citizens. Greece is systemic for the euro. A continuation of the current policies is causing emotional chaos among the society and will inevitably lead to national elections soon and political uncertainty. Euro zone break up risks will emerge again.

On the other hand, government sector reforms will be completed in countries like Greece and Italy only if Germany provides incentives by supporting a new Stimulus-Marshall plan in return for the painful reforms that will boost efficiency and increase competitiveness in these countries. This will be a win-win scenario for the euro zone since the Germans will save the euro and will therefore maintain a cheap currency, while their partners will again feel after years–that Europe is mostly a political union of solidarity and stability and not of self-interest.

Accidentally or deliberately, a minority of politicians influenced from Schauble, imposed a “hope ceiling” for many countries of the euro zone like Greece, Spain, Italy, and Portugal; a limit on the ability of their citizens to even dream and hope about a more prosperous future for them and their families. George Soros defines the European Union as “a voluntary association of equal states that surrendered part of their sovereignty for the common good.” This union, for many of its members, is now admittedly failing to justify the philosophical foundations under which it has been voluntarily constructed. This has to be reversed immediately.

*Ioannis Patrikakis is an economist and entrepreneur based in Athens, Greece.