Time for the return fixture?
Behind the current rebellion against ‘austerity’ lies the idea that we can carry on as before if only we can screw the money to pay for it out of someone else. But if the bond markets won’t continue to fund them, who do the anti-austerity activists think will?
The most popular answer is ‘the rich’, AKA ‘the 1 percent’. Musing on the Sunday Times Rich List recently, eccentric Labour MP, Michael Meacher observed that “the richest 1,000 persons…increased their wealth over the last three years by £155bn. That is enough for themselves alone to pay off the entire current UK budget deficit and still leave them with £30bn to spare.” Meacher clearly doesn’t know or doesn’t care how wealth works; the £155bn might not be in the form of cash but (more likely) in the form of assets which would have to be sold for cash which could only then be used to plug the deficit. However, there is no guarantee that these asset values would hold up if these 1,000 rich folks tried to sell £155bn worth at once.
But you also wonder how closely Meacher scrutinised this list. The top six on the list weren’t even born in Britain and attempts to expropriate their earnings so that our government can carry on spending could well see them skedaddle. Francois Hollande’s plan for a 75 percent top rate of tax will see a wave of latter day economic Huguenots flee France, taking with them the capital and entrepreneurial expertise that their religious forebears did when Louis XIV kicked them out.
But at the European Union level, for ‘the rich’ read ‘the Germans’. The backlash against EU austerity amounts to the argument that Germans should hand over more of their money to their Mediterranean partners.
There are two programmes which are widely trumpeted as being able to take the edge off European austerity. The first is the provision of liquidity by the European Central Bank. In practise this means that the ECB will begin printing money to buy the bonds of the squealing PIIGS, much like the Quantitative Easing carried out by the Bank of England. The effects are likely to be just as inflationary. The purchasing power of German incomes will be reduced to help out their Greek and Spanish neighbours.
The other is debt mutualisation. This essentially means that the debt of the eurozone members will be spread around more evenly. This is great if, like Greece, your debt is way above the average. It is less great if, like Germany, your debt is way below it.
Debt as a percentage of GDP
Source: The Guardian
But since the anti austerity activists are all about fairness how fair would it be to the Germans to have them fork out for everyone else? We hear that the “social fabric” of places like Greece, Spain or Ireland is tearing asunder but wasn’t that always the inevitable fate of a social fabric woven from easy credit and borrowed money?
Over the past decade, German workers, with the cooperation of their trade unions, accepted wage restraint and a rise of the retirement age from 65 to 67. As a result German unit labour costs fell by 16 percent between 1999 and 2007.
It was a different story elsewhere in the EU. With Germany running a current account surplus, it was sending capital abroad, essentially lending foreigners the money to pay for German goods, like a mini China.
This money flooded into the nations at the fringes of the eurozone who got German interest rates along with the single currency. And they knew how to spend it.
In Ireland, the boss of Dublin airport was awarded a salary double than that of the Chancellor of Germany. Government spending rose between 2000 and 2008 by 144 percent; welfare spending tripled. In Greece the public sector wage bill doubled. Pastry chefs and hairdressers were placed on a list of 600 professions deemed so “arduous and perilous” that they could retire at 50 on a state pension of 95 percent of their final year’s earnings.
So when you hear cries for the ECB to provide liquidity or for debt mutualisation, you are hearing cries for German workers to work till they’re 67 so Greek crimpers can retire at 50.
Sensibly you know that Angela Merkel will balk at turning her electorate into the galley slaves of Europe.
But then the EU and the euro have never been run on good sense. Between 387 and 455 tribes swarmed from modern Germany, across the Danube and carried off the wealth of Rome. The existential question for the euro is whether Angela Merkel will allow a return fixture.
This article originally appeared at The Commentator