Economic recovery in Europe: Rhetoric and reality

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Economic recovery in Europe: Rhetoric and reality
By Ulrich Rippert
20 August 2009

In Paris and Berlin, politicians and sections of the media are
speaking euphorically of an end to the recession and the start of an
economic upturn.

Writing in the German business newspaper Handelsblatt, Torsten Riecke
declares, “The harshest downturn since the Second World War is over.
The nightmare is at an end.”

With a “powerful growth of 0.3 percent” in the second quarter, he
continues, the economy has “awakened from its state of shock,” and
done so “more rapidly than anyone had reckoned.”

The Frankfurter Allgemeine Zeitung writes that the “recession is
approaching its end” in the 16 countries of the Eurozone. “Thanks to
the economic weight of Germany and France,” it declares, the economic
performance in the Eurozone has “fallen only slightly” in the second
quarter of this year.

According to figures released by Eurostat at the end of last week,
gross domestic product (GDP) in the zone declined by 0.1 percent
compared to the previous quarter, after a drop of 2.5 percent in the
first quarter of the year.

“Analysts Bank on Recovery” was the headline in the Financial Times
Deutschland, which wrote: “The crisis is over: Stock market experts
have not assessed the prospects for the German economy so
optimistically since 2006. The recovery on the financial markets and
the good economic figures are serving to brighten the mood.”

In a radio interview, French Finance Minister Christine Lagarde
preempted Eurostat and announced the French GDP data, saying the
French economy had grown “surprisingly strongly” in the spring.

In these declarations there is a combination of self-delusion and
calculation. The politicians and financial players have a vested
interest in promoting a mood of euphoria to sustain the heady rally on
global stock markets. However, there is little in the actual economic
situation in Europe and internationally to justify such optimism.

The minimal economic growth reflected in the latest data should come
as no surprise, given the manner in which governments across Europe
have opened up their treasuries to bail out the banks. Hundreds of
billions of euros in public funds have been placed at the disposal of
the major financial institutions, without any demands being placed on
the banks or a single one of the bankers responsible for the crisis
being held accountable.

Not only have the banks dictated their own rescue packages to their
respective governments, they have profited handsomely from the
process. The billions turned over to the banks are being used as a
pool for further speculation, while bailed-out banks impose high
interest rates and fees on governments seeking loans to cover their
ballooning debts.

The financial elite regards the crisis as an opportunity to dismantle,
with the collaboration of the trade unions, all that remains of the
social gains won in the course of decades of struggle by the working
class.

What is the underlying economic reality? Compared to one year ago, the
German economy has declined by no less than 7 percent. In a few
months, the German “cash for clunkers” scheme will expire,
accelerating the decline of the country’s auto and auto-supply
industry. The consequences for the German steel, engineering and
chemical industries have already been felt.

Up to now, mass redundancies in Germany have been avoided by means of
a reduced work-hours scheme, which has been renewed several times.
When the 1.4 million employees on short-time work eventually join the
ranks of the unemployed, the official unemployment level will rise to
5 million.

The German trade unions and works councils are rushing to offer wage
cuts and the waiving of contracts. Meanwhile, the reduction in wages,
combined with growing unemployment, is slashing tax receipts and
fueling state deficits in social welfare programs.

A series of countries in Europe confront bankruptcy, including a
number of states in Eastern Europe and Italy, Spain and Great Britain
in the West. State debt is also growing at an alarming rate in Germany
and France. At the start of the week, the Taxpayers Federation
announced that the national debt in Germany would increase by €140
billion in 2009.

If one includes the entire debt accumulated at the federal, state and
local level, plus the funds and guarantees made available to stabilise
the banks, the total German debt swells to €1,600 billion. The
interest costs alone for government debt this year is estimated at €71
billion.

The constitutional “brake on debt” which was recently passed by the
German parliament means that the first priority of any future
government will be drastic budget cuts. The promises being made by all
of the parties taking part in the national election campaign will be
consigned to the waste bin as soon as the votes have been counted on
September 27.

The rhetoric about the end of the economic crisis is also aimed at
confusing workers and forestalling social protests, while behind the
scenes unparalleled attacks are been prepared on living standards and
social benefits.

A glimpse of what is to come was provided by the so-called “Guttenberg
Paper,” which was made public just a few days ago. The document,
bearing the title “Proposals for a Sustainable Industrial Policy,” was
commissioned by German Economics Minister Karl-Theodor zu Guttenberg
and lists some of the savage measures which business lobbies are
demanding in response to the crisis. Similar measures to those
outlined in the “Guttenberg Paper” are already been prepared by the
appropriate ministries, but there is an agreement amongst the various
political parties that no one raise such themes in the course of the
election campaign.

The Frankfurter Rundschau reports that the 52-page document calls for
“tax relief for businesses,” “the reduction of supplementary wage
costs,” and “increased flexibility in the labour market.” The document
urges a weakening of job protection provisions, limits to sick pay and
the scrapping of proposals for a guaranteed minimum wage.

Economics Minister zu Guttenberg embodies the arrogance and egoism of
the financial aristocracy. Just 38 years old and lacking any real
background in politics, he is convinced that it will be possible to
reduce the working class to the sort of conditions that prevailed in
the nineteenth century without provoking any tangible reaction.

At the same time there are voices warning of undue optimism about an
economic recovery. In its latest edition, the weekly Die Zeit writes:
“‘Recovery at last! Investment bankers establish upward trend,’ reads
the New York Times. ‘Further progress in the business world,’ reports
the Wall Street Journal. ‘Economists see signs of a recovery.’
‘Powerful rise on the stock markets,’ report others... The headlines
appear to come from August 2009. In fact, they are from the year 1931.
They were published in the midst of the Great Depression in the US,
i.e., in the blackest economic epoch of the 20th century.

“At that time there were also stock market rallies, euphoric
commentaries by experts and those ready to dress up economic
statistics. They always, however, quickly came to an end. The economy
and stock markets first experienced a sustainable recovery from 1933
onwards—on the basis of a dramatically shrunken economic landscape.”

And—one should add—under conditions of a fascist dictatorship which
brutally suppressed the German working class and prepared the way for
the Second World War, which led to destruction and devastation across
the globe.

Once again, the propaganda about an end of the crisis is the prelude
to violent social conflicts.

http://www.wsws.org/articles/2009/aug2009/euro-a20.shtml

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