The headlines across Paris focus on the future of the
Eurozone without Greece. It is a foregone conclusion, at least amongst the
patrons of the smart café’s in the Montparnasse, that Greece will exit the
Euro. “Not a moment too soon,” says my waiter, who is a student of economics at
the Sorbonne. “Trying to keep Greece in the Eurozone has been a costly mistake for
the EU” he thinks.
Pierre and his student friend Martine, also an economics
student at the Sorbonne, both suggest that what we are witnessing in Europe is
the classical struggle for the soul of capitalism that Marx described in Das Capital. It is clear that capitalism
has failed the people of Greece, Spain, Italy, Portugal and Ireland and that
permitting the financial markets to operate with a great deal of immunity from
responsibility and then transferring private risk to public debt will mark the
end of this period in the history of capitalism in the West. What these two
students don’t understand, they tell me, is how the adoption of the Shock Doctrine – austerity and
privatization ($50 billion of public assets in Greece are about to be
transferred to the private sector in the next quarter) aimed at stimulating
capitalistic responses in a “more efficient” market will lead to growth and
prosperity.
They are not alone. Austerity has not and will not work.
While Greece does need to better manage its public finances, the underlying
problem is the lack of growth coupled with the decline of productivity, the
absence of significant manufacturing capacity and skills and the ageing
population. Austerity will just hasten a “death spiral” for the economy, says Andre
- an MBA student at INSEAD.
The movement towards growth, spurred by the G8 meeting at
Camp David, will splutter and splinter the EU. The summit meeting held this
week showed this clearly. Even though Angela Merkel was present at the G8 and
appeared to support the “growth agenda”, behind the scenes she is quickly
undermining some of the key ideas. She is against EU wide public spending using
pooled EU funds. Against the issuance of Euro Growth Bonds underwritten by the
Eurozone countries. Against letting inflation rise to 4-5%. Against increasing
the size of the European Stability Fund to permit greater risk taking by
Government. Against the creation of nationally owned “bad banks” to restore
confidence in the “good” banks so that they in turn can lend with surety. In
short, the German Chancellor is against actually doing anything that would lead
to growth.
History is her pointer. She points to broken promises by the
Mediterranean Eurozone countries with respect to public finances. She points to
Italy and asks “if we did everything everyone is talking about, would Italy
suddenly change and become highly productive, efficient and effective
economy?”. She is right to ask the question. She is also right in her
assumption that, apart from the earthquake hit region in the North, the answer
would be no.
But her conclusion is that “austerity is the only way” and
that “this lady is not for changing her mind” is a mistake. It shows a lack of
understanding of the real situation here, which is only partly a structural
economic problem. The underlying problems are social, generational, political
and cultural.
The social dimension relate to the underlying assumptions
within many European countries of entitlement. Entitlement to a limited work
week (by law, 35 hours in France is the maximum anyone is allowed to work), to
early retirement with state pensions (between 55 and 60 in France), to generous
support for unemployment (up to twenty four months at 70% of salary in France)
and generally free health care, including prescription and dental. While these
entitlements are now being challenged, the public reaction to even modest
changes is equivalent to the reaction of a small but violent group of students
in Montreal to a modest increase in student fees.
The generational dimension is that fewer of the young
married couples in many parts of Europe want children and that many of the
young adults stay at home longer than did their parents. This reduces the
mobility of people, lowers birth rates and increases the stagnation of
community. Demography is a major structural challenge for the whole of Europe
and, while demography need not be destiny, it is becoming an underlying
political issue in that disaffected youth are politically volatile. Remember –
youth unemployment of the 16-24 year olds in many parts of Europe exceeds 50%
of the age cohort.
The political dimension is complex. At its heart is the fact
that no one is seen to be describing either the current situation well or is
bringing the future to the present with any sense of authority. Europe is being
led by light weights, like David Cameron in Britain or, well, no one in
particular in Greece. Indeed, Greece’s inability to form a Government is a
symbol of this issue. The electorate does not trust anyone to govern and those
who would govern do not really know what to do. The leadership vacuum is
palpable to the observer.
The cultural dimension is an interesting one. In Paris and
in the French country side, life continues. The café’s are busy, cinemas are
selling out, shops like BHV (the largest Department store in Paris) have many
customers. To some extent, this genuine crisis does not impact daily life for
many people. It is not until it impacts more people in more places will the
extensive nature of this crisis hit hard. In Greece and Spain it is already
doing so. In Italy it is beginning to do so. But at the heart of French life,
the situation is normal.
On the TGV from Paris to Tours (which was full) the Deputy Commander
of French Naval forces told me that recruitment is up, retention is high and
the fleet is well equipped. “For what?” I asked. He smiled. “For whatever comes
next”, he replied, somewhat laconically. This is more than can be said for
France in terms of economic strategy. It is not well equipped and is finding it
difficult to retain its businesses. The navy may be well positioned, but the
country is not.
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