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Prof. John Weeks and Prof. Trevor Martin discuss British PM David Cameron’s call for a referendum vote to decide whether the UK remains a part of EU, as stagnation continues in the Eurozone and bleeds into economic powerhouses like Germany
JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore.
The European Union might be losing one of their largest economies. The United Kingdom is poised to hold a possible referendum vote to decide whether it wants to be in or out of the European Union. There’s a growing sense of nervousness about the possibility of Britain dropping out of the group of 28 countries that make up the E.U.
Here to give us an update on the European Union economy are our two guests.
Trevor Evans is a professor of monetary theory, monetary policy, and international monetary relations at the Berlin School of Economics and Law.
And also joining us from London is John Weeks. He is a professor emeritus at the University of London and author of the new book The Economics of the 1%: How Mainstream Economics Serves the Rich, Obscures Reality and Distorts Policy.
Thank you, gentlemen, for joining us.
TREVOR EVANS, PROF. ECONOMICS, BERLIN SCHOOL OF ECONOMICS AND LAW: Thank you.
JOHN WEEKS, PROFESSOR EMERITUS, UNIV. OF LONDON: Thank you for having me.
DESVARIEUX: So, John, I want to start off with you. What’s going on there in Britain? Why is British Prime Minister David Cameron discussing dropping out of the E.U.?
WEEKS: Well, I would answer it on two levels. One is there’s the sort of nuts-and-bolts trivia of the Tory Party. There are a lot of people in the Conservative Party (Tory Party) who are instinctive isolationists or their real heart’s with United States. They don’t want to have anything to do with Europe. They still have this feeling that Europe is a hotbed of socialism, which it isn’t anymore (Trevor might want to say something about that). So one thing is Cameron has a lot of people in his party that want out. And that’s been true in the Tory party for at least 30 years.
The other issue is that Britain, the British government, even under the Labour Party under Tony Blair and Gordon Brown, did not want to adhere to the rather meager social protection rules run or required of the European Union. They so-called opted out of them.
So, on the one hand, it’s a bicker within the Conservative Party. On the other hand, all three of the serious parties in Britain are opposed to the more social democratic focus of some European regulations.
DESVARIEUX: But is this also about economics? ‘Cause the Eurozone, there’s gross stagnation, John.
WEEKS: Well, I think that there is an economic aspect of it, but I think there’s a lot of irrationality here. The European Union is Britain’s largest trading partner. However, there is this dream that Britain will break into the Chinese market in a big, big way and that will replace some of the trade from Europe. But I agree you would think that Cameron would be saying to himself–and I think he does to certain extent–we can’t really pull out, because it could hurt our trade, and corporations wouldn’t like it–and certainly the corporations wouldn’t like it if they pulled out. But on the other hand, there might be other possibilities for it. So it is about trade. You are right about that. But for some non-obvious reason, it doesn’t seem to trump decisions in the Tory Party.
DESVARIEUX: I see. Trevor, I’m going to bring you into the conversation, and let’s discuss more about this Eurozone stagnation. What are the root causes of this?
EVANS: Can I just come in on what John was saying, that I think that I agree with what John was saying, but there is a major division in the Conservative Party in Britain, and it’s been there for more than 30 years, between an electoral base of the lower middle class that want Britain to be great again and think it should leave the E.U. and the business wing of the party, which, as John was saying, is completely involved in trade with the European Union and doesn’t want to leave. And the Conservative Party is sitting on the possibility of a historic split. Cameron doesn’t want to leave, and he hopes that by saying he’ll renegotiate, he can hold a referendum in a couple of years’ time and keep Britain in. But he will not be able to achieve significant revisions to Britain’s terms. So it does leave the position of the lower middle-class opponents over Europe in a weak position.
WEEKS: I agree completely with what Trevor says. I think that’s absolutely right.
EVANS: Now, the situation in the European Union and particularly the Eurozone at the moment is not at all attractive, that the European Union and the Eurozone have officially come out of the recession, which lasted until last year. But in most of the countries of the Eurozone, economic output is still below where it was in 2007, 2008. Real wages in many countries are below where they were 2007, 2008, that in the northern European countries–Germany, Austria, the Netherlands–there has been some growth. But the European Union is faced with stagnation.
And one of the key reasons for this is that unlike United States, where the government has played a very active role trying to promote the economy, in the European Union and the Eurozone the rules that have been established–very much at Germany’s insistence–mean that governments have their hands bound. All the governments in the Eurozone are under requirements to reduce the government deficits, which means they have to cut their spending to meet very, very strict targets. And as they cut their spending, this is depressing growth, so that although the recession is over, it looks that growth this year will be extremely low. And you have many countries in Europe that have not had any significant growth for many years. And unemployment in the worst cases, Greece and Spain, is now at 25 percent. So the outlook for the Eurozone is extremely bleak at the moment.
DESVARIEUX: John, what in your opinion would turn around this extremely bleak outlook for the Eurozone economy?
WEEKS: Well, I think Trevor touched on–let me just give a fact. Germany, which is supposed to be the powerhouse of Europe, it appears in the second quarter of this year the economy will not have grown at all, not statistically different from zero. So Germany, the country that’s supposed to power the growth of the European Union, apparently will be stagnant, is stagnant at the moment.
What would be necessary to turn it around would be–I don’t want to sound too simplistic, but an increase in government expenditure. This can take the form of investment, for example. Perhaps the only progressive European Commissioner–. As most Americans probably know, or I hope they know, there is a commissioner for each country. The only progressive one, who is a Hungarian, he has proposed a large expenditure in youth training in order to provide jobs and skills for youth and stimulate the economy in that way.
The problem is, at the European level, at the level of the budget of the European Union, it is so small–we’re only talking about a few percentage points of European GNP–that it’s very difficult at that level to stimulate the economy, even if the various governments in the European Union were inclined to do so.
At the national level, it really has to be Germany. I mean, it really has to be Germany to enter into an expansion, a fiscal expansion, which would drag the other countries along with it. And the way it would do that is by stimulating trade between Greece, Italy, Spain, Portugal, and Germany itself. But there’s no sign that that’s going to happen.
DESVARIEUX: I’m glad you mentioned Germany, because there’s actually a German bank–I believe it’s pronounced /ˈbʌndəsbænk/ [Bundesbank]–they’re calling for higher wages. Trevor, why are they supporting an increase in wages?
EVANS: This really is an extraordinary development. The German Bundesbank is the former German central bank, and it’s now, if you will, the German part of the European Central Bank. But within the European Central Bank, the German Bundesbank has consistently had the most conservative positions, voting often just on their own against all the other members of the European Central Bank. And quite extraordinarily, in an interview with the weekly magazine Spiegel on Sunday, the chief economist of the Bundesbank, a gentlemen called Jens Ulbrich, argued that there was a case for wages rising by at least 3 percent in Germany. Now, this is extraordinary, since the Bundesbank has been a firm opponent of wage increases in the past. And through press releases, it’s been indicated that the head of the Bundesbank, Mr. Weidmann, supports this position.
And what we are seeing is Germany’s concern at developments in the Eurozone, that its growth has been, in the past, dependent on exporting to southern Europe, to other European countries, because they are now having to cut their budget deficits to meet E.U. rules. Germany can’t export there anymore. It was also exporting to Asia, and in particular China. But with the slowdown in China, that also is becoming less attractive. So the Bundesbank, faced with these very disturbingly low growth prospects, is now pushing for a wage growth in Germany in the hope that internal demand can pick up the slack.
And this is particularly striking because Germany alone of the euro area countries had no significant increase in real wages from the introduction of the euro in 1999 up to the outbreak of the crisis in 2007. So this call by the Bundesbank for a significant wage increase marks a real turnaround and shows how just how concerned the German authorities are.
DESVARIEUX: Alright. Trevor Evans as well as John Weeks, thank you both for joining us.
EVANS: Thank you.
WEEKS: Thank you.
DESVARIEUX: And thank you for joining us on The Real News Network.
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