It was back in December 2012 when we summarized the biggest failing with the Eurozone: a continent in which due to the lack of a flexible currency (also known as a gift to Germany and what otherwise would be a very, very expensive Deutsche Mark) the member nations were unable to devalue their way out of depression. Namely, that absent the ability to engage in external devaluation, Europe’s troubled nations (i.e., most of them) had only one option: internal devalution, also known as plunging wages.
Most European countries (including France) face a desperate need for external devaluation, which is impossible under a monetary union, leaving only internal devaluation as an option. This is where the much maligned concept of austerity comes in: from a macroeconomic perspective, austerity is not so much an exercise at moderating the pace of debt increase (as neither Spain nor Italy have reduced their rate of debt issuance), but of gradually becoming more price competitive with Germany: a key outcome that will be needed for the Eurozone to have any chance of survival, i.e., lowering sticky unemployment rates from levels that virtually assure social “disturbances” in the months and years ahead.
And herein lies the rub: because while protests against “austerity” (which as we observed recently has still not been truly implemented in Europe, and certainly not in Portugal or Spain) are a daily event in most PIIGS nations, “you ain’t seen nothing yet.“ The reason: to achieve the unavoidable macroeconomic rebalancing, and to collapse the spread between soaring labor costs in the periphery and those of Germany (see chart below), the bulk of European countries will need to see wages collapse by anywhere between 30% and 50% to compensate for the lack of state-level currency devaluation optionality. And yes, this includes France.
This much is now accepted by all. Our conclusion, however, demanded more: an actual admission from the brutal oligarchs of the artificial monetary union whose only purpose -like everything else in the New Normal – is to facilitate the transfer of wealth from the poor to the rich.
… telling a continent, which in its desperation is hopeful and confident that the worst is behind it (as its lying politicians take every opportunity to note) that the most acute of standard of living collapses is yet to come, is borderline cruel and unusual. So we will just keep our mouths shut and let Europe’s politicians bring this depressing message to their people. We are confident the reaction will be more than dignified.
Well, today the unthinable finally happened when the following stunner was released by László Andor of the European Commission, in a press release discussing the “Employment and Social Developments: Annual Review highlights need to address risks of in-work poverty“:
Social dimension of the EMU
The still growing macroeconomic, employment and social divergences threaten the core objectives of the EU as set out in the Treaties, namely to benefit all its members by promoting economic convergence and to improve the lives of citizens in the Member States. The latest review shows how the seeds of the current divergence were already sown in the early years of the euro, as unbalanced growth in some Member States, based on accumulating debt fuelled by low interest rates and strong capital inflows, was often associated with disappointing productivity developments and competitiveness issues.
In the absence of the currency devaluation option, euro area countries attempting to regain cost competitiveness have to rely on internal devaluation (wage and price containment). This policy, however, has its limitations and downsides not least in terms of increased unemployment and social hardship, and its effectiveness depends on many factors such as the openness of the economy, the strength of external demand, and the presence of policies and investments enhancing non-cost competitiveness.
So there you have it, not from some fringe blog or some radical, foaming in the mouth euroskeptic, but from the bastion of that most artificial construct of modern times itself: a “united Europa.”
And now, we hold our breath for the reaction from the general public upon their realization that for the past decade they were openly lied to every single time a politician opened their mouth, and all they have to show for it is record high unemployment and the worst standard of living for most (if not for the top 1% – they have never had it better) in recent European history.