Bill Jamieson: Arid talks point to deeper problem at Europe’s heart
FOR people locked in critical situations it is good advice to keep a diary. Such a discipline can be therapeutic. It can give a sense of narrative progression.
It can help in the analysis of problems. And who knows – such an account may be the makings of a masterpiece warning future generations of what, and what not, to do.
Keynes wrote a memorable account of the post First World War reparations conferences at Versailles – The Economic Consequences Of The Peace. Here the seeds were sown of the economic and political catastrophe that was to befall Europe and culminate in the Second World War. Keynes described the meetings with excoriating brilliance. I do not know if anyone is keeping a diary in the group of Eurozone finance ministers. But by this stage it must surely have exhausted any modern-day Samuel Pepys. Any account of the myriad of “euro crisis summits” over the past three years would already run to a row of shelf-bending volumes – and with as yet no sense of progression, still less resolution in sight.
But an account must be made for, like Versailles, these summits speak to a catastrophe-in-the-making. They have all the pomposity, arrogance, fantastical unreality and blindness to disaster that so haunted the haggling at Versailles.
Another “euro crisis meeting” of finance ministers was held this weekend, hard on the heels of the “don’t lecture us” G20 outburst of the European Commission president. This was to discuss a “roadmap” for banking and political union. How we could do with a Keynes to chronicle and expose it all! A pertinent issue this weekend was who gets which jobs at the top of European institutions – a continuing obsession of the Euro elites as the buildings around them burn. Jean-Claude Juncker intends to step down later this year as president of this distraught group. Angela Merkel has encouraged her finance minister, Wolfgang Schäuble, to step forward. As if on cue, France’s President Hollande is pushing his own finance minister for the post because he is … French.
Meanwhile, two developments put the future of the European Stability Mechanism in doubt. The first, following a ruling by the German Constitutional Court last week, is that a challenge to the constitutionality of the government’s conduct could delay German ratification of the European Stability Mechanism treaty beyond the 28 June target and quite probably beyond the 9 July deadline when Mr Juncker had hoped to see it up and running. Without German ratification (it is supplying 27 per cent of the funding) it cannot proceed. The second is a growing apprehension that the plan to agree banking union first will prove a bolthole by which profligate governments can stuff their banks with their questionable debt and then appeal to the deposit guarantee fund for a bailout. Little wonder Mr van Rompuy warns there may no agreement before December. As economist Stephen Lewis laconically concludes, “it is anyone’s guess what state the Eurozone will be in by then”.
All this might be dismissed as Europe as usual were it not for something that Keynes would immediately observe: that not only the Eurozone but western economies overall are undergoing a long-term progressive deterioration. This may not be a conventional cyclical downturn, albeit more pronounced than recent ones, but a more fundamental step-change downwards. Expectations of a return to pre-crisis rates of growth may be foolhardy.
Scottish economist John McLaren sets this out well in an analysis for the latest edition of the Fraser of Allander Bulletin. As with so much of his work for the Centre of Public Policy for Regions it deserves greater support and acknowledgement, addressing as it does the impact of external economic developments on Scotland’s economy and finances.
His starting point is that the world’s advanced economies are struggling to emerge from the current “Great Recession” – a term now commonly used by the IMF and others to describe our situation. Compared with previous world downturns, the bounce-back has been anaemic.
The current “Great Recession” saw an overall fall in Scottish GDP of around 4.5 per cent – much more than in any of the previous recessionary periods. The length of the downturn in Scotland is only comparable with that seen in the 1980s, though the position now, four years after peak output, is much worse that at the same point in the 1980s.
A problem of particular Scottish circumstance – or something wider? McLaren points out that on OECD data the depth of this recession far exceeds that of any of the preceding recessions back to the 1970s. Looking at data going back over 40 years, there appears to be, decade by decade, a slowing of growth rates across developed country economies. While this can be said for the OECD as a whole, it is particularly pronounced in many EU economies, including Belgium, Finland, France, Germany, Italy, Portugal and Spain. Indeed, the decade 2000-10 has proved to be one of relative under-performance when measured by the growth of living standards.
Thus assumptions of a return to “normal” annual levels of growth are coming under question when we see that growth in advanced economies has been slowing over the past four decades. The challenge for Europe is greater than even the immediate crisis suggests. Meanwhile key questions remain unresolved. Can Eurozone governments and central banks agree on a firewall big enough to protect debt-soaked economies while structural reform is undertaken? Will voters stick with the painful reform measures required? And amid calls for euro land to develop a common fiscal government, will politicians agree to surrender sovereignty?
Analysts at HSBC, evoking Keynes’ description of policy in the 1930s as “a colossal muddle”, predict the Euro-zone economy will contract by 0.6 per cent this year with a return to growth of just 0.3 per cent next. The UK is forecast to score growth of just 0.1 per cent this year and a recovery to 1.8 per cent next – trailing the rate achieved in 2010. Global growth this year is likely to be about half that experienced in 2010.
This is no V-shaped recovery but something more resembling Japan. And in that light, the euro crisis summits look ever more like a replay of Versailles: chaotic, pathetic, psychotic.
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Wednesday 22 May 2013
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