Europe clings to scorched-earth ideology as depression deepens

The Telegraph ^ | 12/9/2012 | Ambrose Evans-Pritchard

[bruinbirdman]

Like the generals of the First World War, Europe’s leaders seem determined to send wave after wave of their youth into the barbed wire of tight money, bank deleveraging, and fiscal austerity a l’outrance.

The strategy of triple-barrelled contraction across a string of inter-linked countries has been the greatest policy debacle since the early 1930s. The outcome over the last three years has been worse than forecast at every stage, in every key respect.

The eurozone has crashed back into double-dip recession. It will contract a further 0.3pc next year, according to a chastened European Central Bank. The ECB omitted mention of its own role in this fiasco by allowing all key measures of the money supply to stall in mid-2012, with the time-honoured consequences six months to a year later.

The North has been engulfed at last by the contractionary holocaust it imposed on the South. French car sales crashed 19pc last month, even before its fiscal shock therapy -- 2pc of GDP next year. The Bundesbank admitted on Friday tore up its forecast on Friday. Germany itself is in recession.

The youth jobless rate has reached 58pc in Greece, 55.8pc in Spain, 39.1pc in Portugal, 36.5pc in Italy, 30.1pc in Slovakia, and 25.5pc in France, with all the known damage this does to the life-trajectory of the victims and the productive dynamism of these economies.

EU policy elites blame "labour rigidities". The United Nation’s economic arm UNCTAD counters that the EU demand for "wage compression" is itself perpetuating the crisis.

The labour share of total income has fallen to a 60-year low, eating away at demand. This is a formula for perma-slump. In a thinly veiled attack on Berlin, Frankfurt, and Brussels, the UN decried the "political blockade" against any solution to the crisis

[Rockingham]

Even if the Greeks be made to behave like Germans — which seems unlikely — that would be the task of a generation. In the meantime, some solution must be found that permits monetary expansion in Greece and other debt impaired Eurozone economies. Otherwise, Greece and her sisters in the South will suffer chronic economic stagnation no matter how much lending they receive.

[bruinbirdman]

"The central problem is that the Euro imposes a uniform monetary policy and facilitates the flight of liquidity from impaired economies that need monetary expansion "

Kinda like every EuroZone country is using a foreign currency over whose value they have no control.

yitbos

[Rockingham]

Except for Germany, which, sets the terms for the entire Euro zone. Other countries tolerate this because German cash is now keeping the Euro afloat, while the cost for Germany is offset by being able to buy and sell throughout the Eurozone on favorable terms. And, although no longer issued, the German mark is still a valid currency.