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  August 29, 2016

How EU Policies Have Fueled Economic Stagnation

No nations in the European Union are experiencing a recovery, says economist Heiner Flassbeck
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Dr. Heiner Flassbeck graduated in April 1976 in economics from Saarland University, Germany, concentrating on money and credit, business cycle theory and general philosophy of science; obtained a Ph.D. in Economics from the Free University, Berlin, Germany in July 1987. 2005 he was appointed honorary professor at the University of Hamburg.

Employment started at the German Council of Economic Experts, Wiesbaden between 1976 and 1980, followed by the Federal Ministry of Economics, Bonn until January 1986; chief macroeconomist in the German Institute for Economic Research (DIW) in Berlin between 1988 and 1998, and State Secretary (Vice Minister) from October 1998 to April 1999 at the Federal Ministry of Finance, Bonn, responsible for international affairs, the EU and IMF.

Worked at UNCTAD since 2000; from 2003 to December 2012 he was Director of the Division on Globalisation and Development Strategies. He was the principal author of the team preparing UNCTAD's Trade and Development Report, with specialization in macroeconomics, exchange rate policies, and international finance. Since January 2013 he is Director of Flassbeck-Economics, a consultancy for global macroeconomic questions ( Co-authored ACT NOW! The Global Manifesto for Economic Policy published in 2013 in Germany.


KIM BROWN, TRNN: Welcome to the Real News Network. I’m Kim Brown in Baltimore.

Over the next few months European leaders will be meeting to plan for a post-Brexit EU as negotiations get underway for Britain’s departure. The business press has for the most part been saying that the Brexit vote has not had much impact on European economies, but meanwhile, the Wall Street Journal is reporting some economists as saying that recent economic data from the European Central Bank shows little need for monetary stimulus from the ECB. Now, the data also showed that the profits of the Euro-area banks plunged 20% in the first quarter of this year.

Joining us now to discuss the state of the European economy is Heiner Flassbeck. Heiner was the Director of the Division of Globalization and Development Strategies at the UN and he’s coauthored the new book, Against the Troika: Crisis and Austerity in the Eurozone. He’s joining us today from France. Heiner, good day.

HEINER FLASSBECK: Hi. Good to have you.

BROWN: Heiner in a recent article of yours you write that official German statistics are misleading when it comes to the state of the German economy. Can you explain what this is and then give us what you think is an accurate portrayal of how Germany is fairing?

FLASSBECK: Yea the German statistical office is reporting growth in the first and in the second quarter. But looking at the indicators so to say, the hardcore indicators that you have incoming orders, industrial production, construction production, retail sales and so on, the picture is quite different. The picture is much bleaker. We have according to all these indicators we have a full production, construction, as well as industrial production and retail sales from the first quarter to the second quarter. And that does not fit with an increase of GDP. What I said is we need to have more information about how this calculation is made by the statistical office.

BROWN: So how are various parts of Europe been fairing since the financial crisis began?

FLASSBECK: Well let me say it’s a plain disaster what happened in Europe. We have a very short recovery after 2009, which lasted for something like one and a half years. Since 2011, European economy is actually flat. There is no growth at all and some countries, in particular Italy and France, even see recession. Can you imagine recession since 2011? That’s 5 years from now and that is really a disaster and shows complete failure of European economic policy which was based on austerity and German like improvement of competitors.

BROWN: So Heiner, are there any European countries experiencing a recovery?

FLASSBECK: No but beside maybe some very small ones. I’ve checked in my report, all the major countries and there is no recover nowhere. What we see is that a country like Spain and Portugal which are very low levels of production, much lower than France and Italy even, they have kind of recovery but you need a microscope to find it. Again the reported figures for the Spanish economic are 0.8% increase quarter to quarter. In the first quarter 0.7 and in the second quarter a product of fantasy but doesn’t have nothing to do with the reality.

So my overall feeling is that there’s a lot of politics behinds the scenes and these calculations of GDP, it’s a calculation. It’s not a statistic. GDP is not a statistic but a calculation based on statistical indicators. So what we see is that even in the official rate it’s very slow growth. It’s close to no growth. But as I said the real indicators show that it is nothing. France still has an unemployment rate of more than 10%, 5 years after the end of the small boom that ended in 2011. 10%. More than 10%, imagine what the political discussion in the United States would be if this would be the result of economic policy.

BROWN: Heiner you write that at its core it is German-Dutch mercantilism which is responsible to get together but the economic governance of austerity for the stagnation across Europe, what is Germany doing according to the regional stagnation. And what alternative polices to austerity can EU nations adopt to bring. A real recover?

FLASSBECK: Well you see, the first thing that I mentioned it several times in interviews with CRNN is that Germany went on a mercantilistic path immediately after the beginning of the currency union by wage dumping. Germany put political pressure on wage increases so the wages did not increase in line with [protivity] and that increased Germany competitiveness inside the monetary union because the monetary union do not have currency. An exchange rate that you could change to compensate for such an advantage. So Germany so to say, beggared its neighbors by going for competitiveness which is clearly mercantilist strategy, a useless mercantilist strategy. Well it brings you [inaud.] because Germany has now the biggest [inaud.] in the whole world with something close to 9% of GDP.

But overall demanded Germany was flat and only after a while when the other countries in Europe went into recession and Germany really looks better because it is looking relatively better. But not in absolute terms. So this is blocking, so to say, the whole monetary union and this is a huge block for 450 million people and the GDP that is larger than that of the United States, is blocked by the German approach because Germany is insisting that it has got everything right. German strategy was right and so it’s forcing other countries to do that same, the mercantilist approach. Which is stupid for a big closed economy that is as if you would say, the United States. We have to cut wages; we have to tighten our belts to improve our exports. And even if our domestic demand is collapsing, we don’t care. We’re going to have to improve exports. And this is stupid. This shows that the whole of Europe, including France and Italy and the political leaders have not really understood what this Europe [is] all about.

BROWN: So there are no European countries right now experiencing economic recovery and the EU is going to have to figure how it is going to deal with the Brexit that was vote on by British citizens just a few months ago. We’ve been speaking with Heiner Flassbeck. Heiner was the Director of the Division of Globalization and Development Strategies at the UN. You can also check out his new book he’s coauthored—it’s called, Against the Troika: Crisis and Austerity in the Eurozone. He’s been speaking to us from France. Heiner, thank you so much for your time and your expertise.

FLASSBECK: Thank you for having me. Bye.

BROWN: You’re watching the Real News Network.




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