Criminally Incompetent in the EU

by TOM McNAMARA

“Never ascribe to malice, that which can be explained by incompetence”
— Napoleon Bonaparte

As they say in top 40 radio, “And the hits just keep on coming!” More bad news out of the European Union (EU). The most recent survey of key euro-zone (the 17 EU countries that use the euro as their currency) indicators shows the following:

  • Industrial confidence – down
  • Service confidence – down.
  • Consumer confidence – down
  • Retail confidence – down
  • Manufacturing production expectations – down
  • Manufacturing employment expectations – down
  • Services employment expectations – down
  • Export orders – down

In March of this year, the Economic Sentiment Indicator (ESI) went negative in both the euro-zone and the EU. The European Commission (EC), the civil service arm of the EU, in a fit of delusion rich by even their standards, stated that this negative sentiment puts “on hold the recovery that had started in November of last year.”

Recovery? I guess if a person blinked they could be forgiven for having missed it.

Euro-zone GDP (Gross Domestic Product), by the EC’s own admission, is expected to shrink by another 0.3% in 2013.

This, on top of the already depressing news of:

  • Unemployment rose in January to 26.2 million people or 10.8% of the economically active population (11.9 % for the euro-zone area).
  • Youth unemployment reached a new peak in the EU in January at 23.6%, with levels in Spain and Greece now approaching 60%
  • EU fertility rates stand at just under 1.6 children per woman. This is below the generally accepted replacement rate of 2.1 and a sign that a society is dying.

But surely there is at least one Nobel Prize winning unelected fonctionnaire in the hallowed halls of Brussels who is cognizant of the pain and suffering being felt by millions and the growing disillusionment with the whole grand project that is the EU, is there not?

Have no fear. EU Employment and Social Affairs Commissioner László Andor is here.

In a speech given on April 13, 2013, Commissioner Andor spoke of how “social dialogue is crucial to the competitiveness of all our economies and our European way of life.” However, due to the current economic crisis, this precious social dialogue was “under great strain,” especially in countries “benefiting” from the programmes and assistance directed by the EU and the IMF (International Monetary Fund).

So why the sudden concern for what the 503 million citizens of the EU think and feel? Commissioner Andor doesn’t mince his words. He states frankly that a “lack of confidence and trust in our institutions can undermine the whole European integration project and unravel our achievements. We cannot build a united Europe without people’s support. And that includes the social partners.”

It appears that Commissioner Andor realizes that the EU’s project for the further economic and social integration of 503 million people just might involve asking those 503 million people what they think, and that it just might involve a majority of those 503 million people agreeing to go along with the EU’s programme. Hint to Commissioner Andor: it’s called “democracy.” You might want to look into it.

Commissioner Andor also said that “Sound policy needs to be based on solid data and analytical evidence.” Well, one would hope so, wouldn’t they?

Which brings us to EC Vice President Olli Rehn. He has been one of the most vocal proponents of the need for “fiscal consolidation,” or as it is better known in the English language, austerity. The Vice President has continuously droned on about the need for countries with troubled economies to get their so called fiscal houses in order. He is adamant about the need for EU countries to reduce their debt levels, by hook or by crook, to below 90% of GDP. This usually involves some mix of tax increases and reductions in government spending, the exact opposite of what basic “Macroeconomics 101” would tell you to do in the midst of the worst economic crisis in 80 years.

And what exactly is the “solid data and analytical evidence” that the good Vice President has based his fanatical faith in austerity on? In a speech given in Poland on March 8, 2013, Vice President Rehn tells us that “serious empirical research has shown that at such high levels, public debt acts as a permanent drag on growth.”

It would be interesting to know what “serious empirical research” the good Vice President was referring to. A certain “Economist Who Writes For The New York Times And Who Shall Not Be Named” believes that he has the answer. He has been a vociferous critic of the EU’s leadership in general, and Vice President Rehn’s ideas in particular, calling the belief in “expansionary austerity” misguided and based on a questionable piece of research; a paper written by Dr Carmen Reinhart and Dr. Kenneth Rogoff called “Growth in a time of debt.”

In a recent development, Drs Reinhart and Rogoff (to their credit) have admitted that their paper contained some Excel spreadsheet errors and that some key country data was missing from the calculations. This calls into question the critical argument that proponents of austerity make, namely, that once debt levels reach 90% of GDP there is a permanent brake on economic growth.

This new bit of information apparently hasn’t been lost on Vice President Rehn, who in remarks given on April 19, 2013, said that while fiscal consolidation (i.e. austerity) has been a success (the word “success” apparently meaning something different for the unelected fonctionnaires in Brussels than it does for the rest of us), he will let us in on a little “secret” (his word, not mine). He tells us that “the pace of consolidation [i.e. austerity] in Europe has already been slowing down since last year.”

Well then, that just fixes everything, doesn’t it?

But it’s odd. If austerity has been the rousing success that Vice President Rehn claims, why slow it down now? And if we were to ask the 26 million people who are out of work what they think, something that the EU has gone to great lengths to avoid, what would they say? I’m sure they would insist on a continuation of the “successful” self destructive policies put forth by the EU, wouldn’t they?

For those of you who are concerned that all of this pain, suffering and economic turmoil will put the plans for further EU integration on hold, not to worry. Whereas it appears that the Vice President is backpedalling on austerity, he is “full steam ahead” on financial integration, reiterating the Commission’s calls for a banking union for the euro-zone. And why not? Since monetary union has gone just swimmingly, why not a banking union as well? What could possibly go wrong with giving more power and control to unelected fonctionnaires, this time in Frankfurt, home to the European Central Bank (ECB)?

(Author’s Note: I guess Vice President Rehn didn’t get Commissioner Andor’s memo about the danger of “the peasants revolting” due to poorly planned and poorly thought out policies being rammed down their throats)

Tragically missing from the Vice President’s rhetoric is the exact cause of this global crisis. The situation that we currently find ourselves in was brought on by reckless and irresponsible speculation in the $639 trillion unregulated over-the-counter global derivatives market, in conjunction with poor, or non-existent, regulatory oversight by various government agencies. This crisis was then further aggravated by poorly planned and poorly coordinated government policies that were doomed to failure from the very start (i.e. austerity).
Sadly, Dutch Finance Minister and Eurogroup (a meeting of all of the finance ministers of the euro-zone countries) President Mr. Jeroen Dijsselbloem in a recent twitter posting said that the EU’s future growth agenda will be based on “fiscal consolidation, structural reforms and reforming [the] financial sector.” English translation: get ready for more painful austerity combined with more dictates from (and more power being given to) unelected fonctionnaires in Brussels and Frankfurt, with a minimal amount of consultation with the 503 million people affected by these policies.

So, to recap:

  • 26 million people are out of work in the EU
  • The true cause of this crisis (speculation in the multi-trillion dollar unregulated global derivatives market) has not been addressed and will most likely never be addressed
  • The leaders of the EU responded to this crisis mainly with the failed policy of austerity
  • The leaders of the EU have apparently based this failed policy of austerity on a faulty research pape
  • In acknowledgement of the unpopularity of the failed policy of austerity, its imposition will be “slowed” but not stopped (I guess this is as close to democracy as we can expect in the EU)
  • In light of the failure of the euro and the failure of austerity, the EU is committed to an ever closer entangling of disparate financial and banking systems, and giving more power to unelected (and unaccountable) fonctionnaires in Brussels and Frankfurt.
  • The leaders of the EU have shown a complete and utter disregard for the pain and suffering caused by their failed policies
  • The leaders of the EU, in general, have shown a level of incompetence that borders on being criminal

And to think, if you kicked a dog they would put you in jail.

Tom McNamara is an Assistant Professor at the ESC Rennes School of Business, France, and a Visiting Lecturer at the French National Military Academy at Saint-Cyr, Coëtquidan, France.

NOTES:

“Commission sets out next steps towards a deep and genuine Economic and Monetary Union” European Commission Press release, Reference: IP/13/248, Date 20/03/2013. Accessed at:

http://europa.eu/rapid/press-release_IP-13-248_en.htm

“Compliance Action: ICE Said to Put Hold on Investor Swaps Clearing After SEC Rule” by Carla Main, Bloomberg, March 21st, 2013. Accessed at:

http://www.bloomberg.com/news/2013-03-21/sweden-s-banks-freddie-libor-suit-cyprus-compliance.html

“Debt crisis undermines industrial relations: EU report” EUbusiness, April 11, 2013. Accessed at:

http://www.eubusiness.com/news-eu/economy-politics.nw9

“EU Employment and Social Situation: Quarterly Review analyses deepening social crisis” European Commission Press Release, Reference: IP/13/282, Date 26/03/2014. Accessed at:

http://europa.eu/rapid/press-release_IP-13-282_en.htm

“European Union – Statistics and opinion polls” European Union official website, as of January 1, 2013. Accessed at:

http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&language=en&pcode=tps00001&tableSelection=1&footnotes=yes&labeling=labels&plugin=1

“Fertility and living standards: Go forth and multiply a lot less” The Economist, October 29th, 2009. Accessed at:

http://www.economist.com/node/14743589

“Growth in a time of debt” by Dr Carmen M. Reinhart and Dr. Kenneth S. Rogoff, Working Paper 15639, the National Bureau of Economic Research, 2010. Accessed at:

http://www.nber.org/papers/w15639.pdf

“Industrial Relations in Europe 2012” European Commission, Directorate-General for Employment, Social Affairs and Inclusion, Unit B.1, Manuscript completed December 2012. Accessed at:

ec.europa.eu/social/BlobServlet?docId=9994&langId=en

Jeroen Dijsselbloem Twitter account. Accessed at:

https://twitter.com/J_Dijsselbloem

“Key indicators for the euro area” The European Commission – Economic and Financial Affairs, April 5, 2013. Accessed at:

http://ec.europa.eu/economy_finance/db_indicators/key_indicators/documents/key_indicators_en.pdf

“March 2013: Economic sentiment weakens in both the euro area and the EU” The European Commission – Economic and Financial Affairs, April 27, 2013. Accessed at:

http://ec.europa.eu/economy_finance/db_indicators/surveys/

“Of Cockroaches and Commissioners” by Dr. Paul Krugman, March 6, 2013, The New York Times. Accessed at:

http://krugman.blogs.nytimes.com/2013/03/06/of-cockroaches-and-commissioners/

“REINHART AND ROGOFF: ‘Full Stop,’ We Made A Microsoft Excel Blunder In Our Debt Study, And It Makes A Difference” By Joe Weisenthal, April 17, 2013, Business Insider. Accessed at:

http://www.businessinsider.com/reinhart-and-rogoff-admit-excel-blunder-2013-4#ixzz2RCtSM1H5

“Speaking Points by Vice-President Rehn at the EC-ECB Press Conference” by Olli Rehn,

Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro, Reference: SPEECH/13/344, April 19, 2013. Accessed at:

http://europa.eu/rapid/press-release_SPEECH-13-344_en.htm

“Speech: European Semester – stable public finances and sustainable economic growth” European Press Release, Reference: SPEECH/13/207, Date: 08/03/2013. Accessed at:

http://europa.eu/rapid/press-release_SPEECH-13-207_en.htm

“Speech: Social dialogue – vital component of European social model, not a luxury” by László Andor, European Commissioner responsible for Employment, Social Affairs and Inclusion, Reference: SPEECH/13/317, April 15, 2013. Accessed at:

http://europa.eu/rapid/press-release_SPEECH-13-317_en.htm?locale=en#PR_metaPressRelease_bottom

Tom McNamara is an Assistant Professor at the ESC Rennes School of Business, France, and a former Visiting Lecturer at the French National Military Academy at Saint-Cyr, Coëtquidan, France.

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