{"id":29603,"date":"2012-05-11T20:00:14","date_gmt":"2012-05-12T00:00:14","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/05\/european-elections-voters-say-no-to-economic-reality\/"},"modified":"2012-05-11T20:00:14","modified_gmt":"2012-05-12T00:00:14","slug":"european-elections-voters-say-no-to-economic-reality","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/05\/11\/european-elections-voters-say-no-to-economic-reality\/","title":{"rendered":"European Elections: Voters Say \u201cNo\u201d to Economic Reality"},"content":{"rendered":"

By MoneyMorning.com.au<\/a><\/strong><\/p>\n

\u2018Europe fights back against austerity,\u2019 was how The Daily Telegraph<\/em> headlined its weekend European election<\/strong> coverage. \u2018Anti-austerity movements are gathering pace across Europe following political earthquakes in France and Greece. A total of 12 European governments have now been dismissed in three years.\u2019<\/p>\n

As the European welfare state is officially in its death-throes none of us should be surprised if political strife gets cranked up to eleven. I firmly expect that we will see much more of this in the future.<\/p>\n

<\/span><\/p>\n

While I can understand the anger of the electorate and sympathize with the sense of desperation and foreboding, I cannot, however, consider the electoral choices of the weekend particularly enlightened. They do not reflect a coherent, let alone intelligent strategy as the Daily Telegraph<\/em> headline seems to imply.<\/p>\n

If those who \u201cwon\u201d a European election deliver on their promises, economic disintegration will only accelerate. What is being offered in terms of \u2018solutions\u2019 is a dangerous assortment of economic poisons, more suitable to describe the European disease than provide a recipe for stronger growth.<\/p>\n

Recovery through early retirement and infrastructure spending? \u2013 C’mon. Nobody can take that seriously.<\/p>\n

But it seems that just because this heap of economic stupidity can neatly be swept under the wide tent of \u2018anti-austerity\u2019, the commentariat seems somehow willing to believe in the wisdom of the crowds and look for some deeper insights here.<\/p>\n

I guess the reason for this is that the economic ideologies that are now being strenuously interpreted into the European election results rhyme with the economic prejudices of most commentators. They, too, believe that state bankruptcy is best to be ignored or not to be taken too seriously so that we can spend our way out of this mess.<\/p>\n

The Perceived Wisdom is Wrong<\/h3>\n

<\/center><\/p>\n

For a long time media pundits have treated us to the perceived wisdom that economic growth can only come from the actions of the government. Only devaluation through euro-exit, inflation through more money printing and more government deficit-spending, preferably by the still credit-worthy Germans and then fiscally-transferred to the maxed-out Greeks, can revive the economy because only this can lift aggregate demand, which is the magic cure-all of economic problems.<\/p>\n

What is lost on these commentators is that the European mess is nothing but the inevitable result of government-stipulated aggregate demand. Easy money funded the Spanish and Irish real estate booms and bankrupted their banks and by extension their governments.<\/p>\n

Easy money allowed Greece’s political class to go on a borrowing binge that has now bankrupted the country and lured large parts of the population into zero-productivity, soon-to-be-eliminated public sector jobs.<\/p>\n

Do you still want the state to \u2018stimulate\u2019 the economy? Be careful what you wish for.<\/p>\n

The real culprit of high youth unemployment in Spain and Italy is not \u2018austerity\u2019, which hasn\u2019t even started there, but a bizarrely overregulated and sclerotic labour market in which it is almost impossible for firms of a certain size to fire people. The incentives are thus stacked massively against hiring.<\/p>\n

Yet, in France one of Hollande’s election promises is not to deregulate the labour market. If I were unemployed in France I would not be counting my chances of getting a job over the next five years. In France the state runs more than half the economy, yet Hollande promises not to privatize state-run industry. Where is the wisdom in that?<\/p>\n

Yet, the statists and socialists are delighted. Paul Krugman, who never saw a debt crisis you could not borrow and spend your way out of, rejoices at such display of economic genius<\/a>. We are all Keynesians now!<\/p>\n

Listening to Krugman you would think Greek and French voters were not using the ballot to cling desperately to some remnants of the welfare state but were in fact positively advertising the wisdom of government stimulus and the mystical \u2018multiplier\u2019.<\/p>\n

Some of the commentators tried to argue that what happened was also some kind of anti-establishment vote, a verdict against centralisation and the dominance of the deservedly despised bureaucratic elite in Brussels.<\/p>\n

Nice try, but that is rubbish.<\/p>\n

This was not an anti-establishment vote at all. It was not a vote for change but a desperate vote for the status quo. Of course, the old elite deserved the sack but they were largely booted out not because people got tired of the old policies but because the leadership now finally admitted that they could no longer deliver on the old promises.<\/p>\n

The established parties lost because they could not continue upholding the false promise that had kept them in office for years or decades, the promise to make the \u2018European model\u2019 work. They had to admit that the European welfare state was now bankrupt. Kicking the can down the road is increasingly not an option as the end of the road is now in sight.<\/p>\n

Shooting the Messenger<\/h3>\n

<\/center><\/p>\n

And the European election winners were those who had the chutzpah to maintain that drastic belt-tightening and painful reform were not required but that the people just had to \u2018stick it to the man\u2019, who is Angela Merkel and sits in Berlin. The tactic is straightforward. Shoot the messenger!<\/p>\n

In France that meant voting for a charisma-free Socialist bureaucrat who will revive France with higher taxes, early retirement and a Hoover dam funded by Eurobonds and the ECB. In Greece, the big winner was an ex-Communist firebrand who admires Hugo Chavez, and who has raged against austerity measures and structural reform.<\/p>\n

I guess we now know what the electorate is against. \u2018Say no to cuts!\u2019 But what is it for? Over in Ireland, the deputy leader of Sinn Fein, Mary Lou MacDonald, had the answer<\/a>: \u2018A No vote (to the \u201cAusterity Treaty\u201d) in Ireland will strengthen those arguing for jobs and growth.\u2019<\/p>\n

Well, who could not love a politician who promises jobs and growth? But the relationship between politics and jobs and growth is a tenuous one. Politicians are not savers who fund the creation of a capital stock through saving, and they are not entrepreneurs who put that capital to productive use.<\/p>\n

Politicians are people who spend other people\u2019s money. In Ireland the budget deficit runs at 13 percent of GDP per annum, which according to Krugman\u2019s logic must be a fantastic recipe for jobs and growth. Let’s just sit back and watch how that economic miracle is going to unfold.<\/p>\n

My guess is that many people in Europe still know, or at least instinctively sense, that the promises of jobs and growth through state spending and money printing are hollow. They know that the state is bust and cannot keep spending money it doesn\u2019t have. The policy options are much more limited than the campaign rhetoric indicates. On trend, fiscal consolidation and structural reform will continue, and Germany\u2019s negotiating position will remain strong.<\/p>\n

Yet, on the margin this was an indication that Europe, and in particular France, remain in many areas unreformable, and that the pressure on the ECB to sustain the unsustainable with sizable money injections will, if anything, intensify.<\/p>\n

Detlev Schlichter<\/strong><\/p>\n

Contributing Writer, Money Morning<\/strong><\/p>\n

Publisher\u2019s Note: <\/em>Detlev Schlichter is the author of Paper Money Collapse<\/a>. <\/em><\/p>\n

From the Archives…<\/em><\/strong><\/p>\n

Why China’s New Consumer Economy Won’t Give You the Trade of the Decade<\/a>
\n2012-05-04 – Kris Sayce<\/p>\n

Why China Could Be The Next Destination For the Financial Crisis<\/a>
\n2012-05-03 – Merryn Somerset Webb<\/p>\n

How Did We Get It So Wrong on Australian Housing?<\/a>
\n2012-05-02 – Kris Sayce<\/p>\n

This Indicator Shows the Copper Price Could Be Set to Soar<\/a>
\n2012-05-01 – Dr. Alex Cowie<\/p>\n

How Gold Nanoparticles Will Create A New Kind of Gold Rush<\/a>
\n2012-04-30 – Michael Robinson<\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nEuropean Elections: Voters Say \u201cNo\u201d to Economic Reality <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au \u2018Europe fights back against austerity,\u2019 was how The Daily Telegraph headlined its weekend European election coverage. \u2018Anti-austerity movements are gathering pace across Europe following political earthquakes in France and Greece. A total of 12 European governments have now been dismissed in three years.\u2019 As the European welfare state is officially in its death-throes … <\/p>\n

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