Tagged: EUROPE

Deflation or Recovery?

Recently there have been GDP numbers circulating allegedly showing that the EU economy gained a bit more momentum in the first quarter of 2014. However, these numbers have not yet been formally published by Eurostat, which means that they have not been methodologically validated. Once Eurostat puts out the final numbers we can talk in more detail about what actually going on in the European economy. Until then, I maintain that any talk about a recovery in the European economy is more wishful thinking than anything else.

That does not stop others, of course, from insisting that there is a recovery under way. Today’s contribution comes from EUBusiness.com, a respectable blog that usually does its homework:

Eurozone business activity hit a near three-year high in April as a modest economic recovery gained momentum and began creating much-needed jobs, a closely watched survey showed on Wednesday. Markit Economics said its Eurozone Composite Purchasing Managers Index (PMI) for April, a leading indicator of overall economic activity, jumped to 54 points from 53.1 in March, the highest reading since May 2011. The report also marks the 10th month running for which it has come in above the 50-points boom-or-bust line, reinforcing the view the recovery is finally taking hold.

While I have not been tracking this index in particular, I have pointed out on several occasions that the quarters from Q3/2010 to Q2/2011 was a “rebound” period for the European economy. GDP growth exceeded 2.5 percent, adjusted for inflation, on an annual basis. Then the economy dipped again with growth declining for two years straight, down into the negative. The cause of that downturn is predominantly the massive application of ill-designed austerity, a fact that could give us reason to believe that another rebound will not be broken by bad fiscal policy.

However, this would presuppose that there has been no “recalibration” of the welfare state during the crisis. Which there has been. I will have to devote a separate article to that concept, but briefly it means that government will start running surpluses much earlier in the business cycle than before. This in turn creates an excess taxation situation where government thwarts a recovery merely by maintaining its welfare state. There is a considerable risk that this is going to happen, if Europe gets underway with a sustained recovery.

Back to EU Business:

The outcome suggested the Eurozone economy will grow by 0.5 percent in the second quarter, up from 0.4 percent in the first three months of the year, he added. The upturn in overall business activity was driven by goods producers, although the survey suggested a strong performance of the eurozone’s services economy also played a part. The PMI relating specifically to services showed an increase in activity for a ninth consecutive month, with a rise to 53.1 points from 52.2 in March. Markit attributed the sector’s strong performance to the “largest rise in new business inflows” seen over the past nine months. Manufacturing hit a three-month high of 53.3 points in April, up from 53.0 in March, with a sharp increase in new orders suggesting further gains in May.

It would be much welcome news if this was indeed to translate into more GDP growth. However, these numbers must clear a few hurdles before they constitute a real recovery. First, the driving force must be domestic spending, primarily private consumption. If it is, it means that households and families are experiencing better times and have stronger confidence in the future. If on the other hand this increased business activity is exports-related, then there is a good chance the improvement will be restricted to the exports-oriented sector of the economy.

 One reason to believe that exports are behind this recovery is that the U.S. economy is moving along at reasonable pace. So are some of Asia’s important economies as well. China is in a stagnation phase, but their imports of manufacturing products is more limited than in comparable economies, due to the joint-venture principle they have been applying for decades. Therefore, if the increased business activity in Europe is indeed driven by exports it means that the positive effects from a U.S. recovery will outweigh negative effects of a Chinese slump.

As EU Business points out, there is also another side to the European economy:

Peter Vanden Houte, from ING Bank, said the PMI report adds weight to the theory that the eurozone recovery “has legs” but warned that the risk of deflation remained, given recent very notable price weakness. Capital Economics analyst Jessica Hinds said the ongoing risk of deflation put pressure on the European Central Bank to take “more action” to stimulate the economy, a point made by most analysts.

The fact that there are expectations of deflation among economic agents in Europe reinforces my prediction that this is an exports-driven activity increase. Even if deflation has not yet set in, there is a credible risk that it will. The GDP Deflator index – the best measurement for inflation – for the EU with 28 member states (Croatia joined in January) was 121.9 in the fourth quarter of 2012 and 122.3 in the fourth quarter of 2013. This is very close to deflation, though it is important to keep in mind that occasional quarterly dips in prices does not constitute deflation. We will have to wait until prices fall for four quarters in a row before there is reason to panic. Then again, economic expectations have a nasty tendency of coming true.

One last point from the EU Business article:

Howard Archer at IHS Global Insight noted in particular the improvement in manufacturing as a positive sign and said the report was consistent with first quarter growth of 0.4 percent. At the same time, Archer highlighted the continued divergence between strongly-growing Germany and laggard France. “German expansion was robust with both manufacturing and, especially, services activity accelerating,” he said. “In contrast, the fragility of French growth was evident as manufacturing and services expansion disappointingly lost momentum in April.” The lacklustre French performance was a “vote of no confidence in the government by business,” said Christian Schulz at Berenberg Bank. It adds to pressure on Paris to deliver tax cuts and “shake up” the labour market,” Schulz said.

Not gonna happen. But more importantly, the emphasis on Germany reinforces the impression that this is an exports-driven recovery. Germany has for a long period of time been the world’s largest exporter. Even if they may have lost that position to China, they are still heavily dependent on what is happening in the global economy.

In a couple of weeks, when Eurostat releases its final quarterly GDP data for the European economy, we will know exactly what is behind the increased business activity. My bet is on exports.

New Book Wrong on Europe’s Crisis

Since January 2012 I have been practically the only analyst pointing to how deeply flawed economic analysis combined with irresponsible political preferences turned an economic recession in Europe into a depression. In late 2012 IMF economists began hinting that the economic analysis behind crisis policies was not entirely up to standard. In January 2013 the IMF followed up with a formal, very good analysis explaining how they had contributed to the errors.

The IMF paper – a rare but highly respectable academic mea culpa – should have caused a fundamental change of course in fiscal policy in Europe. Sadly, that did not happen. Some rhetoric has been spread around in recent months by EU and national political leaders seeking to distance themselves from the absolutely disastrous consequences of the past few years of austerity, but in reality they have neither changed their policy preferences nor adopted new political goals.

They still have not realized the depth of the errors in their own understanding of the crisis, or what to do about it.

My book about the crisis is due out in August. In the meantime, here is another contribution, reported by Euractiv.com:

In his new book, Philippe Legrain, a former adviser to European Commission President José Manuel Barroso, says European leaders are responsible for the record-high unemployment and rock-bottom growth afflicting the EU. At the height of the euro zone debt crisis, with Portugal’s economy nearing collapse, the European Commission told the government in Lisbon that it had to slash wages if it was ever going to boost competitiveness and grow again. Portugese shoemakers – one of the economy’s main export sectors – steadfastly ignored the advice and found a way to bounce back while actually increasing workers’ pay. It is just one of many examples Philippe Legrain, a former adviser to Commission President José Manuel Barroso, cites in a new book that argues policymakers misdiagnosed the crisis and ended up prescribing the wrong medicine to resolve it.

I’m curious to see if Mr. Legrain drills down to the core of the crisis problem, namely the welfare state. I doubt he does, based on this wage-setting example. The crisis was not really about wages, at least not in the private industry. Private businesses operate in the free realm of the economy. If they set the wrong prices, they go out of business. Evidently, the Portuguese shoe manufacturers had not priced their products wrong.

Let’s see what else Mr. Legrain has to say:

He was an adviser from 2011 until resigning in March of this year, so was involved at some of the most critical moments. “The Portuguese basically said, ‘We’re not going to do that’, and they went upmarket instead,” said Legrain, the author of “European Spring: Why our Economies and Politics are in a Mess”, which is published on April 24. “They are now selling more expensive designer shoes and their exports are soaring – wages and employment have risen,” he said. “That shows in a nutshell how policy was misguided.”

Again, what do you expect of a private business? That they operate on free-market terms (and are allowed to do so by lawmakers and tax-paid bureaucrats). If you have a low-cost production facility and you think you can produce something with higher margins with that same production facility, then obviously you go ahead and do it. It is the same philosophy that Korean car manufacturer Hyundai used when they introduced their new Azera, Genesis and Equus luxury models.

The dicey part is if you can produce with the quality needed for a higher market segment. Hyundai has been able to pull it off (just look at their Equus – it has got to be one of the best looking, best built cars in the world) and, in the other end of the manufacturing world, Portugal’s shoe makers have apparently been able to do it.

But again, this is not the real story of the European crisis. Let’s hope Mr. Legrain has more than this to add. It does not look like it:

Instead of recognising that the crisis was principally the fault of a banking sector run amok, [Europe's political] leaders focused on the excessive debts of Greece, Ireland and Portugal, effectively seeing the problem as fiscal rather than financial. That led policymakers to enforce a strict regimen of budget cuts, tax increases and lower wages in an effort to improve competitiveness and make exports comparatively cheaper.

Oh, dear… First of all, this was not a financial crisis, no matter how many people say so over and over again. Secondly, austerity as designed and executed in Europe from 2010 and on – culminating but not ending in 2012 – aimed to save the welfare state by making it fit into a smaller economy. “More affordable” as someone aptly described it.

Even when Mr. Legrain touches upon the government debt issue, he misses the target by a mile:

While Legrain acknowledges that Greece, with debts greater than its GDP and a budget deficit of 6.5% of output in 2008, was facing mainly a debt crisis rather than a banking one, he says the solution chosen by Europe was wrong. Rather than renegotiating or writing down much of that debt, the Commission, the International Monetary Fund and the European Central Bank pushed through two hard-to-swallow bailout programmes totalling more than €200 billion that left Greece’s economy shattered and just as indebted. Unemployment now stands at 26% and debt is expected to peak at 170% of GDP. Social unrest is bubbling.

His prescribed solution is even worse than his analysis:

“Greece’s debts should have been restructured in May 2010,” said Legrain. “Instead, we have had a lurch towards self-defeating austerity and now have much more centralised fiscal controls, which are inflexible and undermine democracy.”

So called “debt restructuring” means writing down or writing off debt. That is dangerous and reckless. It is dangerous because it means a government walks away from a contract between itself and a private citizen – a bank or a family who has invested in Treasury bonds instead of, for example, buying stocks. It is reckless because it sets a precedent that could eventually stretch into the private sector: if debtors can just write off what they owe someone, a large chunk of the private-property/private-contract dimension of our modern economy is fatally wounded.

This last point is a bit of a stretch, but deliberately so. According to this Euractiv article about Mr. Legrain’s book, all that he has to offer as a solution to Europe’s crisis is that they should have written off debt four years ago, and that the EU should not have handed out certain types of advice to private businesses. This is a very shallow analysis of a problem that runs deep into the European economy – so deep, in fact, that it cannot be solved without a major restructuring of that economy.

In fairness to Mr. Legrain I am going to order a copy of his book. But if this article accurately represents his work, I’m happy to say my book is more relevant than ever!

Tensions Rise in EU Deficit Battle

What is the difference between a turtle and the European economy? The turtle is moving fast forward. There are no lights in the tunnel either, especially when we take into consideration the situation in the big French economy. The socialist government came into power on promises to get the economy going, turn the tide on employment and get the austerity dementors from Brussels off the back of the French people. They have not delivered on a single one of their promises, and even though it takes time for new economic policies to sink in, the French socialist government is closing in on two years in office and should at least be able to produce some credible signs of recovery. But that is not the case. On the contrary, whatever blip on the radar they have been able to produce is succumbing under their tax increases and even more stifling regulatory incursions into the private sector:

GDP Growth French

The rather tepid growth record of the French economy is having a real impact on its government’s relations to Brussels. With the tax base (GDP) barely growing at half a percent per year, it is arithmetically impossible for the government in Paris to close its budget gap. As a result, Euractiv.co, reports:

France is again seeking an extension from the EU on the deadline to reduce its national deficit. European Parliament President Martin Schulz supports the idea but the German government is insisting on adherence to the guidelines of the European Stability Pact. EurActiv Germany reports. In a speech earlier this week, French President François Hollande made it clear he would attempt to renegotiate Brussels’ demands to reduce the French deficit to under 3% of GDP by 2015. The new finance minister, Michel Sapin, also intends to renegotiate the timeline with the European Commission. “The government will have to convince Europe that France’s contribution to competitiveness, to growth, must be taken into account with respect to our commitments,” Holland said on 31 March. But the EU has already given the country two extra years to comply with the Stability Pact’s deficit limit of 3% of GDP.

This is raising tensions over the Stability and Growth Pact, effectively the legal deficit-cap instrument in the EU constitution:

On Thursday (3 April) in Frankfurt, ECB President Mario Draghi again stressed how important it was for eurozone countries to honour their fiscal commitments within the EU. On Friday morning, European Parliament (EP) President Martin Schulz, spoke in favour of meeting French demands. Schulz is the European Socialists’ candidate in the upcoming European elections. Speaking on BFM-TV in France, he said the country must be given more time to comply with the Maastricht criteria. The rules of the Stability and Growth Pact, with its debt limit of 3% must “be reconsidered”, said Schulz. Norbert Barthle is Bundestag spokesman on budgetary policy for Merkel’s Christian Democratic Union (CDU). In his view, another postponement of the deadline should only take place under clear conditions which state that France will really put its budget back on course. The chairman of the Bavarian Christian Social Union (CSU) political group in the EP, Markus Ferber strongly criticised Schulz’s demands to soften the terms of the Stability and Growth Pact: “While the CDU and the CSU have been acting as a fire brigade to extinguish the euro debt-crisis, Martin Schulz is adding new fuel to the growing fire.”

Schulz is the socialist candidate for president of the EU Commission, with a strong statist agenda in his hand. His desire to water down the Stability and Growth Pact has nothing to do with concern for the French economy – it is primarily motivated by a desire to give government the room to grow without any real limits.

Secondarily, Schulz is vehemently against the austerity policies that the EU-ECB-IMF troika has been forcing on some EU states. I share his resistance, but for entirely different reasons. While Schulz sees austerity as an impediment on government growth, I view it – or at least its European iteration – as a macroeconomic poison pill. It is a good idea to stop austerity policies, but the replacement should absolutely not be more government. The French government is way too big, but this is also the case in Europe in general – which is why there is no recovery in sight. On the contrary, stagnation is the new normal. In the last quarter of 2013, industry activity in the EU-28 and euro-18 areas were as follows in key sectors, measured in gross value added (one of three ways of measuring GDP):

  • Manufacturing grew 1.7 percent over the same quarter in 2012; 1.3 percent in the euro area;
  • Construction declined 0.4 percent, the 11th quarter in a row with declining activity in this sector; in the euro area the decline was 1.7 percent, the 22nd negative quarter in a row!
  • Finance and insurance contracted 0.9 percent in EU-28, 1.1 percent in euro-18.

Measured as employment, the numbers do not look better:

  • Manufacturing employment contracted 0.7 percent in the fourth quarter of 2013, the eighth straight quarter with a decline; the decline was 1.2 percent in euro-18;
  • Construction saw employment shrink by 1.4 percent, the 22nd straight negative quarter; the decline was a notable 2.9 percent in euro-18, marking the 23rd quarter in a row with declining construction employment;
  • The financial-insurance industry basically stood still at +0.1 percent (-0.3 percent in euro-18).

(All numbers are from Eurostat.)

Things may turn around when we get the numbers from Q1 of 2014, but I see no substantial reason to expect a sustained recovery. On the contrary, everything points to continued stagnation, in France as well as in Europe. This does not bode well for the future of the continent – perhaps the EuropeanS should get used to scenes like this one:

 

Debt and Growth: A Quick Look

There is an ongoing debate here in the United States about our federal debt. Obviously, we cannot keep raising the debt-to-GDP ratio, and although the federal deficit has shrunk dramatically in the past couple of years, there is a strong likelihood that we will return to growing deficits some time beyond 2018. This obviously means that the debt will accelerate again; what will happen to the debt ratio is a question for future inquiry.

As things look now, the U.S. economy is slowly rising out of the recession at growth rates 2-3 times what the Europeans are seeing. That is somewhat good news when it comes to our debt ratio, a variable that has more than symbolic meaning. Countries with high debt-to-GDP ratios pay more on their debts than countries with low ratios. The reason is simple: a country with a low debt ratio is more likely to have enough of a tax base to both fund its current spending and meet its debt obligations. GDP, obviously, is the broadest possible tax base, so the larger it is relative government debt, the safer it is to buy a country’s Treasury bonds.

The next step in this reasoning would be to ask if the debt ratio itself has any relation to GDP growth itself. In other words, does the burden of government debt on an economy slow down its growth? If the answer is yes, then rising debt creates a vicious circle including higher interest rates, the need for higher taxes and stagnant growth.

Many would say that this vicious circle obviously exists and that no further investigation into the matter is needed. However, those who say so disregard the fact that the United States, with a debt ratio above 100 percent of GDP (we cannot count just the debt “held by the public” because all debt costs money one way or the other) has a faster-growing GDP than the EU does, where the aggregate debt-to-GDP ratio for all 28 member states is 87 percent.

Therefore, as always it is good to take a look at some data. The following figure reports Eurostat data for 27 EU member states (excluding Croatia which became a member just this year) over the period 2000-2013. The data is broken down to quarterly levels and not adjusted seasonally (this vouches for “genuine” observations). The left vertical axis reports debt-to-GDP ratios while the right axis reports inflation-adjusted GDP growth numbers, quarterly over the same quarter the previous year. Since this gives us a very large number of pairs of observations, the data is organized into deciles. Each contains 148 pairs of observations – debt ratio and GDP growth for the same quarter – except for the last decile which contains 149 observations. Each decile reports average numbers for each variable for that decile:

Debt GDP Q 00-13

*) The astute observer will notice that I am only reporting 1,481 observation pairs when 27 countries observed over 14 years, four times per year, should actually produce 1,512 observation pairs. The lower number reported here is due to two factors: only one data series is available for the fourth quarter of 2013, and both series for Malta are missing for the first few quarters.

While this is not an actual econometric study (that would take a lot more time than I have on my hand for this blog) the analysis nevertheless reports an interesting correlation. First, when the debt ratio rises above 60 percent, growth slows notably. The 60-percent debt level is often referred to in the public debate over government debt as a threshold governments should not cross. I have sometimes dismissed this level as arbitrarily chosen, and I maintain that any simple focus on this ratio for legislative purposes is indeed arbitrary. In fact, if we look at the other end of the spectrum a debt level below 40 percent appears to have very strong positive effects on growth. If we are going to have legislation about a debt ratio cap, then why not use 40 percent?

That said, the observed correlation calls for deeper investigation. Unlike some simplistic pundits (you know who you are…) I am not going to draw the immediate conclusion that high debt ratios cause low growth. Let us remember that GDP is the denominator of the debt ratio; if the denominator grows slowly for any reason, and government keeps deficit-spending as usual, then the debt ratio is going to rise for purely arithmetical reasons. However, as mentioned earlier, large deficits themselves can very well drag down GDP growth, raising the debt ratio for causal reasons.

More on that later.For now, let’s conclude this little exercise with two questions that I hope to answer soon:

1. Is there a correlation between large debt and big government spending? If so, the low growth in high-debt-ratio countries could have its explanation.

2. What happens if we delay one of the two variables one quarter? This classic, basic statistical method could tell us a lot about the causes and effects between debt and growth. I am going to take a stab at it as soon as time allows.

Needless to say, any future inquiry would have to include the United States. This one does not, simply because the raw data used here did not include U.S. numbers. Now that I have this data in a configured file of my own it is easy to add U.S. data.

 

Europe’s Right Makes Left Turn

Europe’s only way out of its crisis is to phase out the welfare state and gradually replace its entitlement systems with private solutions. This is a time-consuming process that requires relentless political commitment over a number of years, but it can be done, in Europe as well as here in the United States. However, the economically necessary is not always the politically realistic. Sometimes the economically necessary is not even politically desirable.

The latter scenario is the most problematic. When ideological preferences pull in an entirely different direction than the economy needs to go, the political rift between “ought to” and “must” happen makes necessary economic reforms close to impossible. The growth of nationalists, socialists and even fascists in today’s European political landscape is a clear sign of how big that political rift has become, but there is more bad news (if you can take it…). Recently I reported that the next head of the EU Commission – de facto the executive branch of the European Union – is going to be a statist, no matter who wins the May European parliamentary elections.

Today, Euractiv.com offers another example on how Europe’s ideological landscape is drifting to the left. They interview a former Belgian union activist and influential politician who is running for the European Parliament on a ticket for the center-right European People’s Party coalition. By their ideological label you would think they would be fighting hard for less government, lower taxes and more economic freedom. Well, sorry to disappoint you:

Mr. Rolin, you’ve decided to leave the trade union and enter into politics and run for MEP at the next European Parliament elections. What will be your priorities?

My first, second and third priorities will be employment, because that is the most important things right now. We see how the current crises affect us, how they deconstruct the European social system. Unemployment is devastating in social and economic terms but also in terms of democracy. We see it with the rise of Eurosceptic, populist and far-right groups.

“Deconstruct the European social system” is a code phrase for cutting entitlements in the welfare state.

We heard from the panelists at the European Trade Union Summit that austerity does not work. Do you share this opinion?

Entirely. Austerity policy does not work. And we see it. If it did work, it would have been verified, you know, like in mathematics. This has been verified by Greece, we’ve just heard it at the panel. It does not work. It creates more inequality, more unemployment, more misery in the population. Therefore it is high time to change our course. Even though we succeeded in saving the European currency, we need to have a policy focused on investments. I think that the ETUC’s programme aimed at boosting investments is very pertinent.

The first problem with austerity that he brings up is “inequality”. The very concept is alien to any concerted effort at promoting economic and individual freedom. By accepting the term “inequality” we immediately accept the false notion that it is somehow wrong that some people work harder than others and thus earn more money.

It is very telling of just how deeply the welfare state has been accepted in Europe that a parliamentary candidate for the large center-right party coalition regards “inequality” as the biggest problem with austerity. Unemployment comes second and general misery third. Never mind that austerity destroyed one quarter of the Greek economy; never mind that it has recalibrated the welfare state and made it an even heavier burden on the private sector. No, the biggest problem with austerity is that it has caused more “inequality”.

But wait – there is more:

Austerity does not work, you say. but you will nonetheless join the European Peoples’ Party (EPP) group in the European Parliament if you win, and the EPP has been the driver of austerity policies. Your party (Belgium’s Christian Democrat’s Centre démocrate humaniste, CDH) is a member of the EPP at the EU level. Isn’t there a contradiction between your trade unionist’s convictions and your political battle?

I see it as a challenge to bring a social dimension to the EPP, which is absolutely necessary. The CDH’s programme is very clear on that matter. We want to turn our back to austerity and put in place social policies, intelligent economic policies which will make it possible to have a real economic recovery through employment oriented investments, and sustainable employment.

Apparently, now it is part of the center-right path through Europe’s political landscape to believe that government can create “sustainable employment”. This is an outright socialist idea, no matter which way you twist and tweak it. If it was just a matter of “employment” you could let the EPP candidate and his party bosses off the hook with the assumption that they want to have fiscal policies that encourage more growth and more jobs. But the adjective “sustainable” gives an entirely new meaning to any policies for employment. It means, in short, either expanding government payrolls or making it even harder for employers to lay off employees. Both strategies are antithetical to economic freedom, growth and prosperity.

But Mr. Rolin is not just convinced that Europe needs more statism – he is also convinced that without it, the entire European Union is in peril. Euractiv again:

The 2009 EU elections had a record low participation from the voters, do you think this will change this time, that people need more Europe this time?

I am convinced that people need a more social Europe, they need to believe again in the European project. … As for the European Commission’s discourse on social affairs, it seems to me that it is not in phase with the reality. The workers are living a particularly difficult reality because of the crisis. It is therefore high time to go beyond the observation that something needs to be done. We have to be more radical in our policies and make them fit to the citizens’ aspirations. What is at stake is crucial. Either Europe succeeds in answering to European citizens’ aspirations and stop the growing social divide, or the European project will fail.

In other words, the only way for the European Union to survive is that it expands the welfare state at its level, in addition to what the member states are doing.

More welfare-state policies is precisely the wrong medicine for Europe. And just to drive home the statist point with particular fervor, Mr. Rolin tells Euractiv how important it is to raise taxes and reduce the scope of free-market policies:

What should be the priorities of the next Commission?

The tax on financial transactions is an indispensable element. It is time to put it in place, because it is economically intelligent; but also because it will bring equity and trust. Then, we need to stop the fiscal, social, environmental competition. We have to realise that we are Europe. Europe cannot be built on intra-European competition policies. We need to put in place cooperation policies. Together we can win. If we fight against each other in Europe, we will all be losers. That is for me the priority of all priorities: fighting against that logic. And the second thing of course is to boost growth throught sustainable investments. And finally, in terms of economic governance: yes, we need to control the state deficits, because the debts will have to be repaid one day but we need to stop confusing consumption debt or investment debt. When I invest in the future, it’s positive.

A tax on financial transactions will move those transactions to Seoul,Sydney or Sao Paulo. And it will happen fast. The financial industry is very fluid compared to other industries. There are other countries and cities in the world that offer likeable climates for the financial industry. If anyone is in doubt, look at what happened when Sweden tried a similar tax on the stock market back in the ’80s. I have lost track of all the people in that trade that I knew who moved to London or Luxembourg with their employers, as a direct result of the tax.

Alas, the tax is not going to produce any noticeable revenue. All it will do is drive high-end jobs out of the EU, and with them a whole lot of upscale spending that in turn will cause job losses in real estate, retail, manufacturing and transportation. Just look at what happened in New York in 2009-2010 (and look what is coming back there now thanks to a slow but sustained economic recovery). If that is the kind of “equality” that this new center-right European politician wants, then by all means, go ahead. We here in America will happily continue to out-compete you with cheap energy, lower taxes and stronger work incentives.

Mr. Rolin’s passage about ending intra-European competition is more frightening than it sounds like. What he is saying is, plainly, that there should not be jurisdictional competition between EU member states for jobs and investments. But that also means an end to policy competition: it means centralized tax and entitlement policies, centralized regulations, etc.

One of the reasons why the U.S. economy is doing comparatively well is that taxes below the federal level have been kept back during the recession. States have made concerted efforts at reining in spending, mostly with positive results. In addition to the Obama administration’s notable fiscal restraint this has eased somewhat the fiscal burden of government on the private sector. (If Obama showed equal restraint on the regulatory side, our economy would be roaring ahead right now.) When states hold back spending they can cancel tax hikes and even cut or eliminate some taxes. Kansas, Oklahoma, North Carolina and Nebraska are four good examples of states pursuing or implementing tax-cutting reforms. States that have pushed taxes higher lose jobs, while states with constant or lower taxes attract employers.

If Europe gives up on jurisdictional competition, it will lose one of its few remaining instruments for growth-and-prosperity promoting policies. Taxes will rise to pay for an expanding EU-level welfare state. Spending will grow in a misguided attempt to eradicate “inequality”.

And the entire continent will travel, Eurostar style, straight into the economic wasteland of perennial stagnation, eradicated opportunities – and industrial poverty.

Dark Shadow Rising over Europe

This past weekend the French went to the ballot boxes in local elections. Recent pan-European polling has indicated that the socialists could become the largest group in the European Parliament, and that may very well happen. But if Sunday’s French local elections are any indication of what French voters think, perhaps the socialists in general should not get their hopes up too much. They were dealt a very serious blow by the electorate – and to make the defeat even more humiliating, the winners were of another, competing authoritarian brand:

The far-Right Front National (FN) was on course on Sunday night to make historic gains in France’s first nationwide elections since François Hollande became president. In what Marine Le Pen, the FN leader, described as a “breakthrough” and the “end of bipolarisation” of French politics, her party came out ahead in a string of French towns in the first round of municipal elections. The FN won an outright majority in the northern town of Henin-Beaumont and was first-placed in the eastern town of Forbach and the southern towns of Avignon, Perpignan and Béziers.

At the same time, the Telegraph reports, the socialist party…

was heading for heavy losses as voters appeared to punish his dithering and lack of results two years into his five-year mandate. These could trigger a re-shuffle of his cabinet, potentially seeing Ségolène Royal, his former partner and mother of four children, take up a ministerial post. … Almost 45 million French took to the ballot box to elect more than 36,000 mayors for the next six years in what was being seen as a test for the Socialist president, whose approval ratings have sunk below 20 per cent. While municipal elections are fought above all on local issues, disaffection with the main parties clearly bolstered the score of the anti-immigration, anti-EU Front National in the two-round contest.

The nationalists are the only political movement in Europe that can compete with the socialists in terms of authoritarianism. They are a less homogeneous crowd compared to the socialists, in part because Europe – at least right now – does not have that many strong outright communist parties. A notable exception is Syriza which essentially wants to turn Greece into a European version of Venezuela. However, the main reason for this is not that voters in Europe in general have turned their backs on collectivism – it is more a matter of socialists having pushed their ideological goals farther into the murky badlands of government expansionism. In some countries, like Italy, Portugal and Sweden, it is difficult to separate socialists from communists.

Alas, while the socialists are pretty well united around goals such as an even bigger welfare state, even more income redistribution and even more government interference with private businesses (and in some cases the nationalization of banks), the nationalists span a broader spectrum of views and visions. The “mild” version of the welfare state is represented by the Swedish Democrats and the Danish People’s Party in Scandinavia, the Pim Fortuyn List in the Netherlands and the Austrian People’s Party. A bit farther away are Vlaams Belang in Belgium, a separatist, nationalist party that basically wants to split Belgium in half and form an independent Flemish republic. Hungary’s ruling nationalists also belong in this category, as does Front National in France.

So far, the nationalists are essentially modern versions of reborn social-democrat parties from the 1920s and ’30s. Vigorously nationalist as those parties were, they drew a firm demarcation line between themselves and working-class imperialist communist parties of that time. The nationalism of the social-democrat movements were skillfully toned down and eventually removed after World War II and the atrocities committed by the National Socialists in Germany, leaving a vacuum that became even more glaring as Europe – in the middle of its long-term unemployment crisis – opened their doors to large scores of non-European, non-Christian immigrants.

Nationalists began alleging, in some instances correctly, that immigrants came and took jobs from Europe’s own young. They also alleged, even more correctly, that large segments of the immigrant population ended up living well off the welfare state. While the correct conclusion would have been to abolish the welfare state and respect each individual’s right to migrate if he can support himself, the nationalist conclusion was to reduce or even stop entirely any new immigration from outside the EU.

In some cases this sentiment has escalated to yet another level. Golden Dawn in Greece represents its most aggressive iteration, but the National Democrat Party in Germany are not far behind. In Sweden, the Party of the Swedes is capitalizing on rising but misguided frustration over high unemployment – especially among the young – and large immigration. Having their roots in now-defunct the National Socialist Front, the Party of the Swedes is not ashamed of calling for a fascist Sweden.

Some claim that this the outermost extreme of Europe’s new nationalist movement is out to build a unified, European fascist state. I would not be surprised if they are correct, but so far I have not found fully credible sources for this claim. Nevertheless, such an ambition goes well with traditional fascist ideology and would explain their keen interest in gaining a strong foothold in the EU parliament.

The big tragedy in all this is not that one of two collectivist, authoritarian flanks are competing for political power in Europe. The big tragedy is that less-collectivist segments of the European political spectrum are slowly imploding. Christian Democrats, Conservatives and Liberals have all been passionately pro-EU for decades, and now that the EU has basically turned into a power-grabbing behemoth voters quickly associate the power grab and the destruction of large parts of the European economy with the most EU-friendly parties. When they are now pushed to the edge of their own economic existence, and when they feel that their national governments are basically powerless vs. the EU, millions of voters turn to radical parties to find a “quick fix”.

Does this mean Europe’s fascism has been reborn? Eric Draitser over at the Boiling Frogs Blog seems to think so. He draws parallels between the nationalist movement in Ukraine and Syriza in Greece. I do not completely agree with him – I do not yet see a fully coherent fascist movement across Europe – but his article is well worth a read. I do agree that there is a dark shadow rising over Europe; the big question is just how big and ominous that shadow will become. And there is absolutely no doubt that it is growing, as shown in part by the very strong performance of Front National in France this past weekend.

Stiglitz Performs Inflation Raindance

Here is yet another sign that the socialists are increasingly confident about winning the European elections in May. From EU Observer:

The European Central Bank (ECB) should scrap its target to keep price inflation at 2 percent, Nobel prize winning economist Joseph Stiglitz said on Thursday (6 March). Speaking at an event organised by the European Parliament’s Socialist group, Stiglitz said central banks should look to strike a balance between controlling inflation and supporting job creation. “The ECB’s mandate needs to be changed,” he noted.

They spend money on inviting Stiglitz, who probably cost them north of $25,000 including travel, accommodations and honorarium. He is not only a well-known economist but also a fervent supporter of the Venezuelan version of socialism that has sent a formerly prosperous nation into an economic tailspin of runaway inflation and reckless statism.

This alone is probably reason enough for Europe’s parliamentary socialists to invite him. But more important is Stiglitz’s recent recommendation that Europe should continue to grow government. Here is where he really appeals to an emboldened left, determined to restore the welfare-state spending cuts during years of austerity.

When Stiglitz tops off his praise of government with a jab or two at the ECB, there is no stopping the socialists from giving him all the money he wants in order to come over and talk to them. The EU Observer again:

Stiglitz is a long-standing critic of inflation-targeting by central banks, believing instead that monetary policy should be used to stimulate employment.

That is what both the ECB and the Federal Reserve have been doing. The Fed has been printing $85 billion per month for several years now to fund the U.S. government’s deficit. ECB still stands by its pledge to buy any amount of bonds from any “troubled” euro-zone country, any time. Both these monetary policy strategies aim precisely at what Stiglitz is after, namely rock-bottom interest rates to stimulate private-sector activity.

In other words, Stiglitz is breaking through open doors. But as the EU Observer reports continues, so does Stiglitz. Through the open doors, that is:

Stiglitz’s remarks came as ECB president Mario Draghi kept the bank’s headline rates, including its main interest rate, at the record low of 0.25 percent, following a meeting of the bank’s governing council the same day. Draghi said the bank decided to leave the rate unchanged because of continued signs the eurozone economy is slowly recovering. “We saw our baseline by and large confirmed. There is a continuation of a modest recovery,” he told reporters in Frankfurt.

Yes, the recovery

It is unlikely that Stiglitz is really flying all the way from New York to Strasbourg to talk propose a monetary policy that is already in place. More likely, he is on a crusade to pave the way for higher inflation. A faster rise in prices is a wet dream for many statists, as it would inflate tax revenues and close budget gaps without either a need for spending cuts or a pesky fight with those who think taxes should go down, not up.

If this is what Stiglitz is really after, then as the EU Observer reports he has a staunch ally in EU Commissioner Olli Rehn – also known as the Grand Master of European Austerity:

New forecasts published by ECB staff estimate that inflation will stay at 1.0 percent this year, 1.3 percent in 2015, and 1.5 percent in 2016 – comfortably below its 2 percent target all the way through the projection. Last month, the bloc’s economic affairs commissioner, Olli Rehn, warned that low inflation is making price cuts in the peripheral economies less effective at boosting their competitiveness, making it harder to geographically rebalance the economy.

The EU Observer notes that the ECB is not allowed to let inflation rise past two percent…

However, the ECB’s main mandate under the EU treaty is tightly restricted to the maintenance of ‘price stability’ across the eurozone at a rate of around 2 percent per year.

…which explains what Stiglitz really flew over to Europe for: to give the socialists some fuel for pursuing a constitutional change to the ECB mandate.

It is regrettable that anyone is arguing for inflation. It is even more regrettable when that anyone is a reputable economist. And the whole matter gets a bit scary when you consider that the Inflation Raindancer from Columbia University may just have spoken to the people who will actually govern Europe over the next five years. Where is the concern for the standard of living of hundreds of millions of Europeans? Where is the concern for real wages, the value of savings, the predictability of contracts?

So long as inflation stays within 3-5 percent the economy is not going to run away (although five percent is beginning to smell macroeconomic mismanagement). The problem is that politicians who think they can cause inflation won’t know how to rein it in once they have created it.

None of this is apparently of any consequence to Stiglitz. But before he flies over to Europe again, perhaps someone should ask him if he thinks inflation in his beloved Venezuela – reported to be up to 35 percent now – is something for Europe to strive for.

Wishful Recovery Thinking in Europe

Don’t get me wrong – I would be thrilled if Europe could enter a phase of solid growth and sustained recovery. But having studied the European crisis in depth over the past two years (with a book due out in July) I also know what it takes for that economy to recover. So far I do not see anything that tells me it is happening, and I certainly do not see the political open-mindedness needed for the Eurocrats to enable a recovery. On the contrary, I see Europe’s political leaders play “Where’s Waldo?” with the economic recovery. On February 25, the EU Observer declared:

The EU’s economic recovery will gather speed in 2014 and 2015, the European Commission predicted on Tuesday (25 February), indicating that the worst of the economic storm which hit Europe is over. “Recovery is gaining ground in Europe,” economic affairs commissioner Olli Rehn told reporters at the European Parliament in Strasbourg, saying that the EU economy would grow by 1.5 percent in 2014 and 2 percent in 2015. The recovery would be driven, in the main, by increased domestic demand and consumption, as Europeans and businesses become more confident about their economic prospects, he added.

Then today, EUBusiness.com reports:

The European Central Bank on Thursday raised slightly its growth forecast for the euro area this year, but trimmed its forecast for inflation. ECB president Mario Draghi told a news conference that the central bank is pencilling in economic growth of 1.2 percent in 2014, 1.5 percent in 2015 and 1.8 percent in 2016. That represent a fractional upward revision of 0.1 percentage point for 2014, compared with the ECB’s previous projections published in December, Draghi said.

Of these two sources, it would be wise to trust neither. They have both presented spiced-up growth forecasts more times in the past few years than anyone cares to keep track of. But there is no doubt that of these two institutions the ECB possesses the better tools to be fairly accurate.

That said, there are a few items in the way of a recovery, even at the very modest numbers that the ECB foresees. According to the EU Business article, the central bank predicts that

External demand would benefit from the global recovery gradually gaining strength. Domestic demand was expected to benefit from improving confidence, the accommodative monetary policy stance and falling oil prices which should lift real disposable incomes. “Domestic demand should also benefit from a less restrictive fiscal policy stance in the coming years and from gradually improving credit supply conditions,” the ECB said.

The phrase “in the coming years” is critical. So far there has not really been any change in fiscal-policy preferences in the EU generally. Greece is still under austerity pressure, and the French government has gone on a fiscal rampage through the economy, spearheaded by outright confiscatory income taxes. If the EU declared an unequivocal austerity cease-fire, then the member states would stand a chance of getting somewhere down the road of a recovery.

As things are now, it is simply not credible to forecast a recovery. Unemployment numbers point toward a state of stagnation at best, and as I explained on February 17, a more comprehensive look at the European economy suggests stagnation, not recovery.

Since then, Eurostat has released quarterly GDP growth rates for the last quarter of 2013. For the EU-28 there is a little bit of good news: growth was 1.1 percent, adjusted for inflation, over the fourth quarter in 2012. It is the highest quarterly growth rate in more than two years, but it does not give us a full picture of what is actually happening on the ground. Eurostat has so far only released state-specific data for 18 of the EU’s 28 member states, but practically every one of those states reports an increase in year-to-year growth for the fourth quarter of 2013 compared to the third quarter of 2013.

Taken together with the less-disastrous numbers for the third quarter, the fourth-quarter numbers could be interpreted as an emerging recovery trend. However, as this figure shows, EU GDP growth has fluctuated rather violently over the past few years, and even sustained above two percent for a while, without any trend emerging toward an economic recovery:

qwerty

If, as the ECB says, the recovery depends primarily on a better global economy, then we are back to the case of an exports-driven turnaround for the European economy. As I explained last summer, it is practically impossible for exports to pull a modern economy out of its slump.

But even more important than this is the fact that the Europeans have re-calibrated their welfare states. The in-depth meaning of this will have to wait until another article; the short story is that government budgets in many European countries now balance at a lower activity level. As a result, it takes less growth in GDP to generate a budget surplus, a surplus that constitutes a net drainage of money from the private sector to government – where it is not spent. This puts a dampener on GDP growth, and it also leaves more workers idle as it takes fewer workers to produce the taxes that government needs.

The re-calibration of the welfare state is a result of austerity and an important reason why Europe is facing stagnation, not a recovery.

Europe Turns to Socialism

On February 19 I explained:

There is an important reason for my projection that the European crisis is moving into a long-term stagnation phase: the Europeans are not willing to give up their welfare state. The welfare state caused the crisis, primarily by using taxes to deplete margins in the private sector and by using entitlements to discourage work and entrepreneurship. Eventually, all it took was a regular recession spiced up with some speculative losses in the financial industry, and the entire Western world was hurled into a deep and very persistent crisis. Unfortunately, the Europeans have not yet seen the light. (Perhaps they will when my book is out this summer.) Especially European voters are very persistent in demanding that the welfare state remains in place. This is particularly evident in a pan-European poll predicting the results in the May elections for the European Parliament.

That poll showed strong socialist gains among European voters. This is hardly surprising, given that the majority of Europe’s voters apparently believe that the last few years’ worth of austerity policies have been an ideological attack on the welfare state. In reality, it was a warped, economically stupid attempt to save the welfare state by making it fit inside a smaller, crisis-burdened economy. Higher taxes combined with spending cuts – in any combination – has the result of raising the burden of government on the private sector, hence to preserve the welfare state under tougher economic conditions.

As is well known, Europe has long history of fascination with socialism in various forms, from the light versions applied in assorted iterations of the welfare state to the full-blown totalitarian variant that plagued the Soviet sphere for decades. Generations of Europeans have grown up to a life in deep dependency on government. This is unhealthy anytime, anywhere, but it becomes economically dangerous in a crisis like the one Europe is now stuck in.

As if to compound the prospect of a collectivist victory in the May EU elections, the French socialists have launched a bold campaign to win a majority of their country’s delegation to the European Parliament. From Euractiv.com:

France’s ruling Socialist Party (PS) kicked off its European election campaign on Monday (3 March) with the ambition of securing the majority of French seats in the European Parliament, which is currently held by the country’s centre-right party, EurActiv France reports. At a press conference, the French Socialist Party’s first secretary, Harlem Désir, confirmed the Party of European Socialists’ (PES) ambition to take over the majority of seats in the EU Parliament and the job of EU Commission president. Europe, Désir said, “must turn the page of Liberal and Conservative governments, which for years have harmed the European dream. Their blind support to deregulation, widespread competition, fiscal and social dumping, has only led to austerity, unemployment and soaring populism across the continent.”

Yes, how horrible to deregulate markets so people and businesses have more choices. What a horrifying thought to let businesses compete with each other so the best one wins… I can’t wait until the socialists take over the Olympics. Imagine…

  • In the 100 meter sprint, everyone has to get to the finishing line at exactly the same time. If someone gets ahead, the distance by which he won is taxed away and given to those who were last in the race.
  • To assure there is no gender discrimination, the race has to perfectly represent the 50-something different genders that apparently exist in this world (of course, you’d have to expand the width of the race track accordingly…)
  • In hockey, if a player scores a goal for his team he will immediately have to place the puck in his own team’s goal.
  • Gymnasts can no longer be very thin and small. All sorts of women of all sizes must be given the exact same chance to participate, not to mention the same points, regardless of their performance.

Socialist Olympics – where everyone’s a winner!

Now back to the EU election and the Euractiv story, which reports that the socialists are eagerly trying to engage other parties in a debate between the candidates for the presidency of the EU Commission:

For the Socialists, the “presidential” debate is also an opportunity to equate the [liberal] EPP with the incumbent Commission’s results, notably on issues such as social dumping and crisis management. “We are starting in a European climate of sanction towards the outgoing team on the right wing, which led a policy of austerity, recession and stagnation on the economic and social plan,” said Jean-Christophe Cambadélis, the campaign director for the EU elections.

This is actually an important point. By focusing so intensely on austerity throughout the crisis years, the incumbent EU Commission has indeed added fiscal insult to Europe’s macroeconomic injury. Ironically, their policies have expanded the presence of government throughout the economy by taking more from the private sector (higher taxes), giving less back (spending cuts) and depressing private consumption and business investments (higher taxes). In doing so, the commission has gone squarely against the purported ideological foundations of the conservative and liberal parties that have held a majority in the European Parliament since the 2009 elections.

In a matter of speaking, their deviation from their own ideological platform – their endeavor into statist territory – is now paving the way for “real” statists to take over.

And take over they will, says Euractiv:

According to estimates from the website Pollwatch 2014, the European Socialists and Democrats (S&D) would get 217 seats, while the EPP would get 200. The PS secretary general stressed that employment would be at the heart of the European campaign. “Jobs will be our priority,” said socialist MEP

Sounds good when you first hear it. So what do they want to do?

Catherine Trautmann, who took part in the press conference, mentioning the fight for a minimum wage at European level. To curb youth unemployment in particular, the PS secretary general has announced plans to strengthen the budget for the Youth Guarantee Scheme.

A minimum wage across Europe?? This is as ludicrous an idea as anything I have seen recently. What is it going to be measured against? Reasonably, it would have to be against some sort of benchmark, such as a fixed percentage of mean household income.

The problem with that – well, one of the problems with it – is that the benchmark would vary enormously from country to country. The way the European socialist party puts this idea it would be based on the same benchmark across the EU, which, using mean net household income would be 17,475 euros. Let’s say now that the minimum wage is 40 percent of that (a fraction sometimes used when calculating poverty ratios). This means that an average European household living on minimum wages would earn 6,990 euros.

Sounds fine and dandy, right? The problem is that the mean household income in seven EU member states are actually below this level. In Bulgaria and Romania the the minimum-wage level household income would be more than twice the mean household income.

In other words, an exquisite recipe for crashing the labor markets – the entire economies – of Europe’s poorer countries.

Apparently, this is not a problem for Europe’s socialists. Their next suggestion, as per the quote above, is more tax money to a government-run artificial-employment program they so aptly call “Youth Guarantee Scheme”.

It’s a scheme alright… But humor aside, the last thing Europe needs is more regulatory incursions, higher taxes and more people dependent on government. It will only cement the continent as an economic wasteland, stuck in permanent stagnation and industrial poverty.

No Recovery in EU Unemployment

Eurostat, the EU statistics agency, has released new unemployment numbers for Europe. The EU Observer notes that in January the unemployment rate for the euro zone was 12 percent, unchanged from a year ago, while unemployment in the EU as a whole was down by two tenths of a percent to 10.8 percent.

This is the short story of European unemployment, giving the impression that the crisis has stagnated and that there is a small, slow turnaround happening, at least outside the euro zone. But is this true? I recently reported macroeconomic data that show that the European economy is in a state of stagnation, not a recovery. I have also pointed to Greece as an example of how the crisis over the past few years is morphing into a depressive state of economic stagnation.

If I am correct, we should see evidence of a permanent stagnation in Eurostat’s unemployment numbers.

Before we get to the month-to-month numbers, let us take a bigger view of annual numbers which are now reported through 2013. For the European Union as a whole, unemployment has increased almost every year since it was 7.1 percent in 2008. In 2009 it reached nine percent; in 2010 it was 9.7, remaining at that level in 2011. In 2012 it rose again to 10.5 percent.

In 2013 it was up again, to 10.9 percent.

The euro area follows a similar pattern: 7.6 percent in 2008, 9.6 in 2009, 10.2 in 2010 and 2011, sharply up to 11.4 percent in 2012 and up again last year, to 12.1 percent.

This big-picture view shows an unrelenting economic crisis. Before we leave this level, it might be worth pointing to the plateau in unemployment in 2011. After that year, in 2012, the EU joined the ECB and the IMF in subjecting several euro-zone states to economically destructive austerity policies. Precisely as macroeconomic theory would suggest, the effects of those policies spread throughout the euro zone, sending unemployment up another couple of notches.

Thus, annual data show no sign whatsoever of a recovery. At best, we might hope that the jump in unemployment in the last two years is going to be followed by the same kind of plateau that occurred in 2010-11. The only way Europe can enter a trend of shrinking unemployment is if there is new spending going into the economy on a sustained basis. That, in turn, requires structural reforms to the European economy that I do not see any support for at this point.

Moving to a more detailed time scale, quarterly data can be sliced different ways. Looking first at the last quarter of every year back to 2010, we once again see no sign of a recovery. EU unemployment was 9.6 percent in the fourth quarter of 2009, ten percent in 2011 and has been 10.8 the fourth quarter of the past two years. Euro-zone unemployment, in turn, has been inching up all the way: 10.2 in ’09, then 10.6, 11.8 and 12.0.

Again, notice the austerity-driven bump from 2011 to 2012.

If we look at quarterly data as a series of quarters, we get a more detailed view. Here we can actually find the a weak sign of something that could turn into a recovery:

  • For the EU as a whole, unemployment increased seven quarters in a row, from 9.5 percent in the second quarter 2011 to eleven percent in the first quarter of 2013;
  • In 2013 unemployment fell marginally to 10.9 percent in the second quarter and 10.8 percent in the fourth.

The euro zone, on the other hand, saw an eight-straight-quarter rise, topping out in the second quarter of 2013 at 12.1 percent. The drop by a tenth of a percent since then is not the beginning of a trend.

The fact that the euro zone does not exhibit the same minor decline that the EU as a whole can show, is an indication that there is no emerging recovery in the EU as a whole. Instead, this is a matter of isolated reductions in non-euro zone countries such as Lithuania (-2.1 percent in 2013) and Hungary (-1.8 percent).

Moving, lastly, to monthly numbers, we start with the first month of every year back through 2009:

2009M01 2010M01 2011M01 2012M01 2013M01 2014M01
EU 8.1 9.6 9.5 10.1 11.0 10.8
Euro zone 8.7 10.2 10.0 10.8 12.0 12.0

See any downward trend? Nope. Just yet more evidence of stagnation.

But what about month-to-month? Let’s go back through 2012 and 2013 to find out:

EU Euro zone
2012M01 10.1 10.8
2012M02 10.2 10.9
2012M03 10.3 11.0
2012M04 10.4 11.2
2012M05 10.4 11.3
2012M06 10.5 11.4
2012M07 10.5 11.5
2012M08 10.6 11.5
2012M09 10.6 11.6
2012M10 10.7 11.8
2012M11 10.8 11.8
2012M12 10.9 11.9
2013M01 11.0 12.0
2013M02 11.0 12.0
2013M03 11.0 12.0
2013M04 11.0 12.1
2013M05 10.9 12.1
2013M06 10.9 12.1
2013M07 10.9 12.1
2013M08 10.9 12.1
2013M09 10.9 12.1
2013M10 10.8 12.0
2013M11 10.8 12.0
2013M12 10.8 12.0
2014M01 10.8 12.0

Long story short: unemployment numbers for the EU and the euro zone firmly establish that the European economy is in a state of stagnation. This is, again, not the least bit surprising to anyone who knows his macroeconomics: so long as there is no new spending injected into the private sector, on a sustained basis, there will be no sustained reduction in unemployment.

As depressing as that conclusion is, it is not surprising. It is the predictable fallout of the fiscal and monetary policy package in Europe over the past several years.