September 11, 2014
The concerns on the “old continent” or the United States referring to the current economic, financial and societal downturn are based on different realities, but the main debates and concerns go the same path. Except that, following the general line, the American approach is more pragmatic and result-oriented.
Roads that obviously lead to nowhere. What is a road that leads to nowhere? We’ll try a somewhat simplistic definition. Let’s say it’s a route generated by sterile and ineffective options (even if at first glance they seem intelligent, timely and desirable). Route that doesn’t go to heaven, neither to Hell. It lands in a gray area, in a purgatory, the moment when all participants are trying to convince themselves and get used to the idea that Hell is not that bad and that they could not reach the Heaven (that may not exist). Meanwhile, somewhere deep inside, everyone knows that yes, it will be bad.
But there are individual solutions, aren’t they?
Transition from Purgatory to Hell will be done in time. But in this case, time doesn’t heal, it condemns. Definitively and irrevocably.
What do we lose?
The economy, the system, the global order? None of them. The economy will adjust itself, even if it goes back to the origins of primitive barter, the “system” will reinvent itself and the global order will remain the same, with some hue temporary adjustments.
We lose people, we lose generations, we lose consciousness.
Do we care?
We should! Because in the end all these losses will be paid by us. Or by our descendants.
This concept of “road to nowhere” is available in the economy and politics alike. If we want to answer the question “what phase of the crisis we are in?” we won’t do it only by looking at the numbers supporting a sluggish economic stimulus.
The recession we are talking about has chronicized, extended and transformed. The crisis is economic, financial, societal, educational, behavioral, identity and political. Our economies and societies are in that Purgatory.
A small inadequacy example. The lighthouse we follow in the analysis of the dynamics of national, continental or global economies is GDP’s evolution, with all its disclaimer variants. Although we know that this indicator doesn’t have the capacity to assess economy’s evolution, and less, of our societies.
Thus, what would be important to follow is not the recession’s phase, if we come out of recession or if it return – it is still in the chronic phase – but rather what policies to put in motion, what should be our new way of thinking, what should be the analysis perspectives, what are the necessary measures, detailed by stages and milestones, from where to start the systemic action, etc.
We live with evidence: the recovery, the return does not occur or, at least, doesn’t show to occur in a balanced and healthy pace. The finance people continue running after the most risky investments, but with high yields; the banks seem to have completely forgotten their place and role in the economy; the industrial production remained a “Cinderella”, being relocated to the suburbs which offer reduced costs and relaxed rules of the game.
The politics still holds the magic wand. It can still make decisions and choose what policies to implement. But does it? Why the politics isn’t using the power it actually holds? Due to the lack of solutions, lack of will, the desire to remain in the comfort zone, or all together?
The picture of the austerity’s impact presented by Caritas Europa in a report “The European crisis and social costs – A call to the correct alternative solutions” reveals that the programs implemented in Spain, Italy, Romania, Portugal, Greece, Cyprus and Ireland haven’t led to economic recovery but deepened the recession’s effects, revealing unprecedented unemployment, increased poverty level and impediments in economic and societal development, and even a significant setback.
We have seen the death of “infallible” neoliberal policies. Did we replace them with something? To a small extent. Basically, both Western Europe and the USA are keen not to accept the evidence, still claiming that this policy typology is alive and viable.
The Caritas report is an atypical one because is made from a collection of stories and not from just a set of numbers. It states that the consequences of the recession translated into reality through “houses that weren’t able to afford heating in winter”, “an unprecedented lack of access to social services, including health services” and “serious psychological problems observed in society”. Through these descriptions we approach the first level of a more widespread reality, one that must not be delayed.
The same report shows that Romania “has a widespread and deep poverty problem” and “the VAT increase from 19% to 24%, introduced by the Romanian government in 2010 under the EU-IMF, affected the incomes of poor by increasing basic commodity prices”. All this is worsened by the high percentage, 35%, of Romanians living in low income families.
The social risks are huge and growing, the social systems don’t meet the current challenges, the social cohesion is a very distant principle and all these create a structural problem whose projection in the future may be long, persistent and serious.
The vicious chain austerity – unemployment – poverty – social polarization – isolation -extremism is the great challenge of the following years.
The current problem is the lack of major alternatives to austerity. What sould we put instead of austerity? The populist discourse of development, without solid foundation, prolongs the trend of irresponsibility.
Many of these errors actually come from misunderstanding the concept of austerity. “Neoliberal thinkers” did not bother to explain. Austerity does not mean cutting the spendings, hunger, social dramas, employment blocking, eliminating important chapters of the budget etc.
Austerity means removing those unproductive expenditure and prioritizing the productive ones, considering their expected results, prioritization of investments based on their expected value added, setting up a bureaucracy leaner, more flexible and definitely higher qualification (even if this means an additional investment in human resources).
Austerity means modesty, opportunity and accounting.
Furthermore, it requires but a profound rethinking of the internal market and new targets for the external one.
In other words, austerity cannot be an objective. The austerity policy may be a tool, a measure.
Austerity, a welfare instrument. Paradoxically, right?
If we have understood the necessary policies to be implemented in the right way, we would have gained several years of our development. But most importantly, we would save a lost generation.
This is the new economic concept that we need to promote and apply. But certainly won’t be called “economic austerity”.
We will describe and define it as “a policy of welfare intra and inter-generations“. It sounds pretentious, but the concept and implementation are handy.
Returning on the realm of numbers and analyzes, we have the World Bank report from June on the global economic outlook for 2015-2016 which concludes that the main engine of growth in the Euro area remains external demand, with the amendment that the worsening tensions between Europe and the Russian Federation can change the problem’ data. The banking institution’s forecast was conducted on the existence of a stress scenario that will not worsen. And probably will get worse.
However, there is a major concern about conflict developments in Ukraine and their effects on the world economy. Apart from the implications for the energy market, the agricultural market is put under serious pressure. Russia and Ukraine are significant grain exporters, accounting for 11% and 5% of global wheat exports. Ukraine has a share of 14% in corn exports.
As for Russian gas exports, the World Bank calculated a loss of 10% of GDP in the Russian Federation and a minimum 50% increase in gas prices needed in Central and South Eastern Europe. These figures are available without taking into account other possible sanctions and their effects.
The Russian gas price increase will blow yields and productivity of European companies and the prices of goods and services, including public deliverables. The European population will impoverish again.
How will react the European societies at this new wave of poverty and polarization? Will they explode or implode?
Hard to say at this time.
Consequently, the economic development forecast for this year has been adjusted to 3.2% from 2.8%. The often adjustments with very small percentages confirm us that there is no effect on long-term actions and lasting positive developments are incidental. And probably the estimates will continue their descending pace.
The markets are fragmented, with a credit contraction and high cost of borrowing, economic growth of the Euro area is subject to several types of risks, internal or external shocks that inevitably affect market confidence, economic recovery and trigger off deflation, all these being mentioned by the International Monetary Fund report published in July 2014.
Another fault signal is activated by Jaime Caruana, General Manager of Bank for International Settlements, which captures the same ferocious hunting after high yields, the same dangerous practice that favored the crisis. He adds the economies liabilities which grew by 20 percentage points to 275% of GDP and looks very concerned about companies that borrow heavily just to redeem their shares, 40% of syndicated loans being granted to companies and institutions whose ratings are not recommended for investment, this rate being higher than in 2007. Even the emerging Asian powers cannot act as shock absorbers for the global economy as happened during the Lehman crisis; there is an expectation that they can turn themselves in danger sources.
We note that now there are numerous indicators in a worse state than pre-crisis period, which would naturally lead to a negative forecast.
The inter and intra-generations sustainable welfare policy must be understood correctly and quickly applied. Otherwise, the dominoes pieces of economy and society will not only tilt, but collapse.
Let’s not forget that this moment, time is not our ally!
Author : Adrian Marius Dobre