Archiv | 30.01.2015

The Weakness of the Euro, Currency Wars and Migration

This is the (updated) translation of an article that was issued January 19, 2015 on flassbeck-economics. We intend to publish one article in English every week to allow more readers to follow closely our analysis of global and European events.

If it would not be true, you would never believe it. For over a decade by now, Germany is flooding the world with German products, mainly because of its policy of low wages protected by the weakness of the euro. It rose to the rank of the biggest creditor in the world. Now, German entrepreneurs welcome an even weaker Euro. The Euro depreciated against the US Dollar by about twenty per cent last year. Presently, German entrepreneurs are dreaming of parity with the Dollar; in other words, they fantasize about a Euro that is so weak that it would pull the whole European economy out of the swamp of stagnation and deflation. German entrepreneurs conceive the current weakness of the euro as another opportunity to increase their market shares and to push the ‚others‘ even deeper into deficit. Indeed, a recently published video in the German newspaper Handelsblatt, shows a German ‚currency expert‘ calling the weak Euro a ‚gift from heaven.‘

If an even weaker Euro is a gift from heaven, then the gods are indeed insane. Everyone who has not lost his mind should ask the simple question: who are the ‘others’? Where will the job losses take place this time? How many people will be affected? Another important question that is never asked: Why are the ‘others’ accepting their fate? Are they just ignorant or simply too weak to oppose another round of destructive German-European mercantilism?

Switzerland, with its notoriously high current account surplus, may well deserve that their companies are being swept from world markets. But is the Euro zone, with nearly 350 million people trying to conquer the exports markets previously held by 8 million Swiss people? The currencies of most emerging and developing countries are under strong downward pressure. The catastrophic situation in Eastern Europe and Russia needs no further elaboration. Japan has long sought to weaken the Yen and China, with a shrinking current account surplus in recent years, has no intention of becoming an importer of capital, i.e. a country with a current account deficit, because it does not want to be dependent on Western capital markets.

This means that there is, in fact, only one area left in the world for the field campaign of European mercantilism: the United States. But here too, there are problems. During the last 25 years, the US accumulated enormous current account deficits: in 2006 and 2007, the deficit grew from $ 700 billion to $ 800 billion a year, a full five per cent of GDP, and last year it grew by $ 400 billion. The United States has chosen to pay for the absence of rational monetary and economic policies of Western industrialised countries by accumulating large current account deficits and increasing their debt owed to foreign countries. Whether the American administration will continue to accept this role is an open question. It has shown in the past – in the case of China – that enormous political pressure is an instrument to discipline surplus countries eventually. Regardless of the outcome, Europe’s economic development now depends to a crucial degree upon the good will of the United States, which can, at any moment and with good reason, change the direction of its economic policies. For example, it may intervene in the foreign exchange market or raise trade barriers. Raising trade barriers may seem unlikely at the moment, but can it be ruled out if the American recovery stalls?

For Europe, this is an intellectual and political failure of the first order. The situation is similar to the darkest hours of recent history: the aftermath of the Great Depression in the last Century. The entire European continent seeks refuge under German leadership in a series of competitive devaluations with Japan and developing countries. Even with a full 85 years after the beginning of the European cataclysm, no one seems to understand that large economies can – and, of course, should – function without continuously trying to snatch the jobs of their neighbours by using the most primitive means imaginable.

Everywhere in Europe, people are suffering because the EU is incapable of formulating economic policies other than those of domestic austerity and undercutting its trading partners through a spiral of decreasing wages. As a result, geographical and social inequalities become increasingly outspoken. Many people have no choice but to leave their home countries in an often desperate attempt to improve their life chances. The loss of living prospects as a consequence of wrong European policies in Eastern Europe is staggering. However, it is not only in Eastern Europe that things are going wrong. Greece, Portugal and Spain have been in a permanent recession since the outbreak of the financial crisis in 2008. Record unemployment rates of twenty per cent or more, has caused many youngsters to move to Germany or the UK and thereby to deprive their home countries of the economic potential that they urgently need. Greece has just revolted in democratic elections against the politics of the troika but it faces difficult renegotiations of the terms under which the EU is willing to help the new government.

In countries where the West intervened, either militarily or through structural reform programs dictated by the International Monetary Fund (IMF), living conditions are even much worse. Of course, this is not Europe’s responsibility alone. Nevertheless, it is true that Europe remained silent when it should have spoken out and Europe fully supports the implementation of pernicious orthodox policies in developing countries which, time and again, lead to failed reforms and systemic economic failures.

When people try to escape the increasingly intolerable conditions in their home countries, we disqualify them from the outset as ‚economic refugees‘ and some try to politically gain from xenophobic resentment. According to a report of the World Bank, Africa risks losing 30 per cent of its agricultural land by 2030. If this happens, millions of people will flee their regions. They will be displaced persons in their own country or end up in refugee camps. International law does not recognize the existence of economic or ecological refugees. While it protects indigenous people the collapse of economies or ecosystems is not considered to justify protection.

It is more than cynical. First, we take away people’s opportunities to make a better life in their own countries. When they flee to the West and to the North, we tell them that they are not welcome. We cannot let ‚everybody‘ in and we refuse to accommodate those who are ‚only‘ seeking a better life. For matters concerning trade, Germany is the most open country in the world. Free movement of goods, capital and services has always been among the highest priorities of the EU. However, when people travel across national and European borders interest in free exchange fades and old pathological resentments surface. Everyone on the planet is welcome to purchase our products. We embrace every opportunity to stimulate this. Yet, once discussions about how to improve living conditions in developing countries come up and what rich countries could and should do, many of us lose interest and offer nothing more than a catalogue of obsolete dogmas that failed, every time and everywhere.

Transl. W. Denayer