Austerity suicide appears to be ever closer for the Eurozone as a vicious circle of investor panic leading to fresh drives to reduce public deficits, leading to cuts in growth are met with more investor panic.
Earlier this week, bond yields in Spain and Italy were back to near the same stratospheric levels that led to Armageddon talk last year of a break up of multiple sovereign debt defaults and a break up of the Eurozone, provoking one banker to declare. “We are back in full crisis mode.’
What’s precipitated the latest wave of Euro doom and gloom is Spain whose zealous spending cuts have slashed growth forecasts and so panicked the markets. But the same policies are being replicated across the 17 country Single Currency bloc with the result that it is hovering on the brink of its second recession in three years.
Unemployment jumped to 10.8% in February, the highest level in at least the 14 years, and its 50% among those ages 15 to 24. In total, 17.1m people are now out of work. The economy is expected to shrink about 0.3% this year with much sharper falls anticipated in austerity-happy Greece, Spain and Portugal. Crucial industries like manufacturing, outside of powerhouse Germany, are going into free-fall. One recent study projected that half of all Italian businesses would have gone under within 5 years. Suicides by the jobless, struggling small businesspeople and others in poverty or facing financial ruin are on the up.
Further punishment for the majority was announced by Spain’s PM Rajoy this week, with a hike in student fees and a new tax on pensioners to pay for healthcare.
Such misery and destruction looks set to continue with the Fiscal Compact, a German-inspired plan agreed by Eurozone and other EU governments bar UK and Czech Republic on March 2 that enshrines what critics have described as ‘permanent austerity’ in a new Treaty. The pact caps public deficits at 0.5% of gross domestic product (GDP) and debt at 60% of GDP and imposes semi-automatic penalties for transgressors. Last Friday, Portugal ratified it and this Wednesday the Italian parliament did too, with backing in both cases provided by social democrats.
Private banks, however, have never had it so good. They have received a trillion euros from by the Frankfurt-based European Central Bank at 1% interest rates since December and while there’s little evidence these dirt cheap loans have hit main street figures show this near-free money has allowed bankers handsome returns speculating on Italian (13%) and Spanish government (6%) debt (bonds).
The approach thus far can be summed up as yet more extreme laxity for the banks and extreme austerity for the 99%. But if the plan is to save the Eurozone, its not working.
As Sony Kapoor, an expert on finance and the economy at the Re-Define think-tank, and Peter Bofinger, a member of the German Council of Economic Advisers, said in an article before EU leaders adopted the Fiscal Compact last month, ‘Europe can’t cut and grow….The EU needs a growth compact, not a fiscal one. Swift action on tax and jobs is the way out of the crisis.’
If the week started badly for austerity champions, it looks like finishing pretty much in the same gloomy state. Thursday, Morgan Stanley predicted that a deepening recession induced by ‘fiscal-policy-induced belt-tightening’ means that Portugal will need a second bailout, ‘probably by September 2012’, while another financial analyst warned that Spain’s banking sector was in such a dire state that the country will ‘inevitably follow the others into a bailout’.
On the upside people’s appetite to rebel against the bankers solution to the bankers crisis appears undiminished. Last weekend Portuguese people were protesting across the country against healthcare cuts and thousands of Spaniards were out in the streets again over education and health austerity measures. On Wednesday, Slovakia held its largest ever general strike of public service workers against austerity measures. Czech unions have just confirmed what is expected to be its biggest ever protest against austerity this weekend. And Italian unions have unveiled plans for further demonstrations next month following action last week over pension reforms and cuts with a string of other stoppages planned and expected in the coming days and weeks.
On Thursday Spain’s Cadena SER radio station reported that the Government of Mariano Rajoy had decided to suspend the Schengen open borders agreement for the week up to the European Central Bank’s board meeting in Barcelona on May 3 because it ‘fears violent protest groups from around Europe will converge on the city’ , according to the Guardian’s Madrid correspondent Giles Tremlett who points out that this may be futile as ‘Barcelona has plenty of its own “anti-system” groups, though, who may also be out to disrupt the meeting.’
The most significant upcoming event in getting the measure of rebellion against the current austerity medicine to bankers crisis will be in France, which is having a belated moment of indignation following waves of protests in the rest of Europe.
France’s Presidential election campaign has been set on fire by the Left Front’s Jean Luc Melenchon, with his civic insurrection and plans for a radical Sixth Republic that puts people, not the bankers first. This blogger will be rooting for the Third Man of the race the Elysee Palace this Sunday.