You can’t buy your way to growth

If the picture painted by politicians is to be believed, the new aid package which will replace the old aid package will ensure conditions favourable to economic growth in the countries of Southern Europe. Yet this vision of the future resembles the missed opportunities of yesteryear. Does anyone really believe that the European debt crisis is behind us?

Until now, we've settled for pushing down hard on the brake and for treating the symptoms of the crisis. Everybody must belt tighten, willingly or unwillingly.

Once again, European leaders did what they do best: stalled for time. They intend to use it to favour economic growth, the only means to get out of the crisis. Growth that can be achieved only if everybody pulls their weight. This congenial and certainly true creed is repeated like a mantra by the major European leaders.

But is it also realistic? One sometimes has the impression that the political class only has a very vague idea of how the economy really works in some countries of Eastern or Southern Europe. There, slogans such as "reforms" or "growth" evoke nothing more than false hopes and pure fantasy.

The dilemma is particularly flagrant in Eastern Europe. When the communist regimes fell, the former economies were scrapped. The factories were closed or they went bankrupt. From one day to the next, or just about, every consumer good was replaced, from toothpaste to margarine including panty-liners, refrigerators, sofas and automobiles.

For consumers in the Eastern countries, this was a true blessing. In the blink of an eye, they went from dearth to abundance. The only problem was the Eastern countries did not have the money to buy all of these Western products. The populations of those countries were thus offered generous loans by the newly established commercial banks, they too of Western origin. The result is that these are now economies that generally produce little and rest only on the precarious perch of indebtedness.

A good part of Southern Europe finds itself in a comparable situation – with shrunken production, insignificant exports, and high debt. In Southern Europe, the introduction of the euro, paradoxically, had effects similar to that of the fall of the Wall. For the first time these countries had access to "real" – and cheap – financial loans, as if the Peloponnese or Estremadura were in the Rhineland or neighbouring on Bavaria.

Such an opportunity undoubtedly comes along only once in a lifetime. For nearly ten years, a deluge of loans flooded into Southern Europe. This money could have been used to build the foundations of self-sustaining economic growth – if investments had been made in infrastructure, in the overhaul of the State, in consolidating entire segments of industry or in education. Instead, it was thrown out the window.

Today, as new aid replaces the old, we are told it will allow the creation of conditions necessary for the expected change in the countries of Southern Europe and for their economic growth. Yet, we have already let this opportunity slip away; it is already behind us. The vision of the future sketched by European leaders resembles yesterday's lost opportunities.

Humans create more problems than solutions. [The late Swedish Prime Minister] Olof Palme used to say that the resolution of a problem – and thus of politics – is a question of will. For Karl Marx, the solution consists of becoming aware of what is indispensible. So be it. Neither of these two approaches can do any harm.

But it is undoubtedly Bismarck who was the shrewdest by declaring that politics is "the art of the possible" and that, therefore, solutions must be sought in what is concretely achievable. Even a mediocre economist or politician is able to find the miracle cure for Greece's economic woes but it would have as little chance of being adopted as one has of getting a Turkish coffee in Athens.

The question is what a number of European countries will live off of in the future given the current context of globalisation. No one seems to have the answer. All that is known is that life styles will have to change radically and that China, much more than Germany, is responsible for this situation.

View from Germany

Hesitation in Berlin attracts speculators

In Germany, the crisis is back, at least in the press. First because of an article in British daily Financial Times which reported that a US financial guru, speculator John Paulson, is speculating against Germany in the belief that the crisis will soon increase to the point that Berlin will lose its triple A rating. Secondly, because, based on economic forecasts of 2% growth in 2013 and because of the dynamic labour market, the government must, once again, face the issue of just how much aid it is prepared to provide to the more fragile members of the euro zone. This leads the German daily Süddeutsche Zeitung to note that —

…it is exactly this division – the major economies such as France, Spain and Italy on one hand and the German powerhouse on the other – which presents the euro club with a fundamental problem: how can a single currency be sustainable when the economies are diverging more and more? This question was posed from the beginning and the States have still not found an answer to it. The solution is linked to that of EU transfer funds. Must the strong countries permanently aid the weak ones so that the differences will not be too great and will not rip the group apart? The answer depends on whether Greece and Portugal are permanent members of the club – but also Spain. [...] We need a clear policy stance. Arbitrary commitments such as the Euro Plus Pact or weak employment stimulus packages cannot succeed.