The caravan moves on – Fiat Euro! 39/2013

Europe got over the German elections. Indebted countries economize only ostensibly. There are never enough subsidies.

Sunday’s election has significantly strengthened the position of Merkel’s CDU. However, it missed the absolute majority and lost its coalition partner, the liberal FDP.

From the inner political point of view, Germany isn’t expected to be changed very much in the near future. Merkel will probably have to build a coalition with her regular opponent, the SPD, which has already announced that it expects to lower the pressure on the imposition of austerity measures – the imposition which has not even started yet. According to Eurostat, all member countries had higher government spending to GDP ratio during the last year than in 2007. Therefore, politicians will make fake promises and Germany will reward them with a debt patching support again.

In spite of the election results, eurosceptic tendencies grow in Germany. The anti-euro party AfD almost overcame the 5% barrier to enter the parliament. Also the German Foundation for Family Business has called for the reinforcement of the subsidiarity principle: European where necessary, national where possible. But even such a simple principle has been changed under the pressure of EU officials living in Brussels.

The Italian transport minister said, that the country will decide how to respect the 3% ceiling on the deficit itself as a response on the European Commission’s requirements of more measures, which would help fulfilling the commitments. The dogs bark but the caravan moves on.

A new methodology developed with intetion to calculate the structural deficits of the member countries has been declined despite the Commission’s recommendation. It would have shown how much austerity the governments need to undertake. Well, it’s much easier to pretend budget cuts than to implement them.

EU funds are one of the forms of the financial transfers from the wealthier to the poorer countries in Europe. It is estimated, that the annual theft of the funds is around half a billion euro. The head of the Commission’s justice directorate told that the real figure „is closer to billions than to millions.“ He might be right, because 258 million euro worth irregularities have been found only by the Slovak procurement office in the last 6 months.

Also tobacco farmers call for more subsidies. More specifically, 9 countries were lobbying for their interests. We should be happy with that, as it indicates success of the common EU policy and lower tobacco consumption. Or not?

There’s a general consensus among the European politicians, that the rescue of euro is necessary to ensure the European unity. Not all have the same opinion. The central bank of Poland has expressed a counter one. It’s analysis warns, that the single currency constitutes a serious threat to the European Union and proposes a controlled dismantlement of the Eurozone. The ECB has a different opinion on that and also many experts who help keeping the eurozone together. That might be one of the reasons of hiring Oliver Wyman – a management consulting firm, which famously said the Anglo Irish Bank was the best bank in the world. The bank, which had to be nationalised and almost bankrupted the Irish state only three years later. Oliver Wyman also undervalued the funding needs of Spain’s banks. Well, experts might make mistakes too, but the health of banking sector should be rated by someone who makes conclusions only at the end of the process.

The ECB president Draghi reaffirmed his commitment to keep interest rates low as long as necessary. Only central bankers are able to name money printing in so many terms comprehensible to nobody.

Draghi also expressed his belief in sustainability of the Greek debt. Optimism is still highly valued, lunacy not that much. Greek public debt exceeded 160% of GDP this year, but a positive report has come from the troika representatives too: forecast for this year’s economic contraction is 4% against a previous estimate of 4.2% of GDP. It means that the Greek economy shrinks for sixth straight year. The Commission expects the crisis to end in one or two years. The problem is, that they have made the same prognosis for 5 years.

Viktor Orban shows the Hungarian style of making reforms. With intention to decrease the energy prices, the government is going to buy back seven formerly privatized companies. Maybe he got inspired by the ovations given to our Prime Minister for the SPP buyback agreement. Hungary, as well as Slovakia should think about the expenses of such a policy. Agreements are made by the government, but expenditures are paid by taxpayers.

Some non-european countries are one step ahead in the fight against the profit-seeking companies. Venezuela is one of those. The government has taken over a toilet paper factory due to shortages. Private owners warn that strong regulation of the economy and prices is the problem. But the government sees a conspiracy of the companies swimming in tissues of toilet paper, which they are not willing to hand over to the nation.

Our government might take this threat seriously and build some minimal reserves in the future. Until that time, let’s manifest our citizen awareness by keeping the minimal reserves at home.

Martin Vlachynsky& Ján Dinga
26. 9. 2013
Translated by Michal Kollár

Fiat Euro! is English version of Euro Crisis weekly newsletter. It intends to inform about the latest development in eurozone from economic point of view. What is Euro Crisis and what is INESS?