Eurocrats Frustrated over Crisis

I recently noted that the Greek economy has begun a transition from depression to stagnation. A couple of days ago an EU Observer report reinforced my point:

Greece came under renewed pressure to reach a deal with creditors on the latest round of cuts and economic reforms at a meeting of eurozone finance ministers in Brussels on Monday (28 January). Troika officials representing Greece’s creditors began their latest review of the implementation of the country’s €240 billion rescue in September. But they are still to approve the next tranche of a rescue loan, with offficials [sic] indicating that an agreement was unlikely to be reached before the end of February.

There you have it: austerity is not over. As I noted in the aforementioned article, the implosion of the Greek economy is tapering off not because the austerity measures have somehow worked – because they have not – but because the private sector of the Greek economy has reduced itself to its bare bones. Consumers basically have nothing more to cut away. The businesses that are still up and running have slimmed down to pure survival mode. What looks like the end of a depression is really the emergence of industrial poverty.

But even under these harsh conditions and grim future outlook for the Greek people, the austerity-thumping Eurocracy is not satisfied. The EU Observer again:

The review “is taking too long,” Jeroen Dijsselbloem, the Dutch finance minister and chairman of the “Eurogroup,” said. “It’s been going on since September-October, and I think it’s in the joint interest of us and the Greek government to finalise it as soon as possible.” Dijsselbloem also told reporters that any further discussions aimed at tackling an estimated €11 billion shortfall in Greece’s finances in 2014 are on hold. “We’ve made it quite clear that we’re not going to come back to it until there is a final positive conclusion to the review,” he noted. “We call on Greece and the troika to do the utmost to conclude the negotiations,” he added.

There are echoes of frustration in Dijsselbloem’s words. Not only is the Greek economy basically going nowhere (except into the shadow realm of industrial poverty and perpetual stagnation) but the rest of Europe is also, at best, at a standstill. Even if Eurocrats in general practice political denial as best they can, even they have to see the macroeconomic writing on the wall.

But even if Greece were to manage to turn its economy around, it would not be able to pull out of its stagnation. The EU Observer again:

The Greek government is not facing an imminent cash-flow crisis, but says it has no political room to implement any more spending cuts. The Greek government says its economy will emerge from six years of recession in 2014, and record a primary budget surplus of 1.6 percent of GDP in the process. It also says that a primary surplus should see its creditors reduce the country’s debt burden as part of the bailout agreement. For his part, Greek finance minister Yannis Stournaras said he hoped a deal could be reached next month, paving the way for the release of more financial aid in March.

The budget surplus is the work of austerity, not a macroeconomic recovery. By completely recalibrating the welfare state for a lower economic activity level, the Greek government has made sure that should the economy ever recover, it will have a budget surplus even before unemployment falls below 25 percent. That surplus, in turn, will have a depressing effect on the private sector much in the same way as austerity does, namely by exacting excess taxation.

Again, the root cause of Europe’s economic ailment is the welfare state. It is also the elephant in the room that nobody wants to talk about. So I will continue to do so.

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