Economics and politics - comment and analysis
11. February 2015 I Heiner Flassbeck I Audio/Video, Economic Policy, Europe

A Very Dark Chapter of Globalization (TRNN-Interview part 3)

The third and last part of my interview with The Real News Network in Baltimore is here. You can find it at Youtube or on TRNN’s website.


PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay. And we’re continuing our series of interviews with Heiner Flassbeck, who now joins us from his home in Germany.
Heiner was the director of the division on globalization and development strategies at the UN known as UNCTAD, and he’s co-author of the new book Against the Troika: Crisis and Austerity in the Euro Zone, which he wrote with Costas Lapavitsas, who’s now a new member of Parliament in Greece.
Thanks for joining us again.
JAY: So, in President Obama’s recent state of the union, it really struck me the way he’s sort of bragging about how the U.S. economy’s adding jobs while Europe’s not, and essentially that we’re all right, Jack. And he seemed happy with that. Europe’s sinking into recession. Japan’s in recession. He’s more or less bragged about the destruction of the Russian economy. Some people suggest that the Americans and the Saudis are helping facilitate that process. It’s not just all market forces to do with low price of oil. But the Saudi decision not to cut back its oil production certainly helped facilitate this $40 oil, which is killing the Russian economy, and of course the Iranians and the Venezuelans. And even the Canadian dollar’s going down the toilet. So what’s Obama got to smile about here?
FLASSBECK: Well, I think it’s–well, if you say, is the best of many weak economies so far, smile or not. But this is not a big performance that the U.S. economy shows. If you look at the fourth quarter again, it was very weak. You had a better quarter before. And the first quarters, the first half-year, was also rather poor. So overall it’s not a great performance. But among all the others, it looks quite good, because the others are so bad.
JAY: Yeah, that one-eyed King in the land of the blind.
But that being said, how long can the American economy be sort of–it’s not an island; it’s totally enmeshed with Europe and the rest of the world. If the rest of the world’s in recession, how long can the U.S. not be so affected by it?
FLASSBECK: Well, that’s a very open question. Much more is the question how much Japan and how long Japan and Europe can go on like this–again, very difficult to answer that. The U.S. can clearly go along for some time, because the unemployment, the official unemployment rate is down a bit.
But I think the overall picture is extremely fragile if you look at the December incoming orders. And industry were extremely the week. Everybody was frightened. If you look at what we looked at a bit more carefully, the overall nominal hourly earnings of all employees in the United States, you find a long series of members that are all close to 2 percent, close to 2 percent since 2008 or so [incompr.] nominal increase. And this even went down in December to 1.7. So this is not a strong economy showing, and this despite all the instruments that were used–quantitative easing, very low interest rates, stimulation of the government in the first round, and so on. So this is not a super economy. It’s, as you said, the one-eyed in the land of the blind.
So the whole–the global economy, I think, is very fragile and can come down, so to say, every minute. And what we see in the oil markets and the currency market is all quite frightening.
I think in the oil market we should not underestimate the point that I made for many, many years, that we had financialization, that we had speculation with commodities. You see we have no slowdown in all commodity prices. This financialization is gone because the players see that they cannot turn the returns that they expected in the commodity markets. The market is very complicated. And the super cycle didn’t show up. So they all went out. There’s clear evidence that the financial players all are out of the commodity market now. So this is for me the main reason for the oil price falling. And you see [it], as I said, in other commodities as well.
But for the dollar/euro, again, this is a very, very dark chapter of globalization. The euro was quite strong up to the beginning of last year, and now it’s down by 20 percent. This would be a big problem for the U.S. The U.S. deficit will grow again, the trade deficit will grow again, definitely, and Europe has already quite a bit of a surplus, and the surplus would go up. So these are all totally unsettled questions. You look at the BRICS or the developing countries again they have so much fragility that any time, whatever shock comes, the world economy can go down quite quickly again.
JAY: The destruction of the ruble or the–what is it–45, 50 percent down drop in the ruble and theweakening of the Russian economy, it seems to me this is extremely dangerous, both economically, but also politically, what might happen in Russia. And Obama’s kind of bragging about it. What you make of that?
FLASSBECK: Yeah, I think they are underestimating the whole–how important the whole of Eastern Europe [is], which is not just Russia. Russia was, up to last year, still a rather strong economy among the Eastern Europeans. If you look at Ukraine, Ukraine is a plain disaster economically, not only in terms of war and peace; it’s economically a plain disaster. Many other countries in Eastern Europe that are former allies of the Soviet Union are in very bad shape, in very bad shape, even those that are members of the European Union. So there is a lot of explosive in the making, so to say, in these countries, and nobody should sit down and say he’s happy that these people get a lecture, so to say, in terms of good behavior. That doesn’t make sense. That’s not something that politically you should play a role. But we should say that in this globalized world, whatever shock occurs, be it Lehman or something else or Greece or whatever [incompr.] Russia, can bring fire to the rest of the world and with very, very bad consequences for everyone.
JAY: Obama seemed to have been suggesting over the last couple of years that–I remember a particular quote of his where he said there is money in Europe, they should use it to stimulate. But that argument does not win the day in Europe.
FLASSBECK: Yeah, that’s right. But this is due to ideology, mainly German ideology, namely, ideology that you should not accumulate any kind of debt. And Germans are happy to be savers everywhere. The German households are saving, private households are saving, private households are savers, net savers, and even the companies are net savers. Everybody’s a net saver. This–German people are considered to be a good, so to say, proof that they are behaving in the right way. This is clear nonsense in macroeconomic terms. And so this is the ideology. There is a lot of money around, and the German government could get money for nothing, from the capital market, a lot of money for nothing, and they should take it and invest it because investment is down in Germany, and they should invest it all over Europe. All of Europe should invest. France should invest. They all could do it at very low interest rates. It’s just a foolish ideology that we should not–nobody should be a debtor in this world, everybody should be a creditor, nobody a debtor, which is clearly nonsense.
JAY: And with the strength of the Republicans, at least in Congress (who knows what happens in 2016), they more or less share the same ideology.
FLASSBECK: Yeah, that’s great. Then the whole world will be a creditor to the Venus or the Mars or the moon. I don’t know when we have to find a creditor–we have to find–debtors, sorry, we have to find debtors, interstellar debtors. But there are no debtors on this world, I know. But the fact that we have zero interest rates or negative interest rates is a result of the fact that no one wants to be a debtor, everyone wants to be a creditor. That doesn’t work. You cannot have creditors without debtors. And the other way around–you cannott have debtors about creditors. But the creditors always believe that they are the good guys and the others are the bad guys, which is, as I said, plain nonsense.
JAY: Now, China has enormous clout in all of this now. What is their point of view on all of this? They’re holding tons of American dollars, which are appreciating. On the other hand, it’s not going to be in their interest to see a global meltdown. Are they playing any more–what role are they playing here?
FLASSBECK: Well, you say they have done their bit in reducing the surplus. The Chinese have understood that they couldn’t go on with this huge surplus forever. Now the surplus is much lower. It’s much lower than the German surplus, for example, which is something for a country of 1.3 billion people, compared to 80 million in Germany. So their surplus is lower than the German surplus in absolute terms. And how they have achieved it: by increasing wages, by allowing higher wages. And the government’s stimulating higher wages through higher minimum wages that were really set by the government. So this was an absolutely reasonable way out. So they’re defending the peg of the currency to the dollar, but they allow real appreciation if they allow a reduction of competitiveness. And this has allowed to bring the surplus down. So they are not in the focus as they were ten years ago.
JAY: And that’s something that’s–.
FLASSBECK: But let me add the Chinese will never become a debtor, because a debtor would mean to be dependent on the international capital markets. That the Chinese will never allow. And the whole of Asia is trying to avoid that. But everybody’s trying to avoid it. You see the Latin Americans are also trying to avoid to become a debtor, because the debtor is always the bad guy, and the debtor has to call the IMF in sooner or later. And so, if you want to avoid that, you have to be a creditor. But, unfortunately, not everybody can be a creditor.
JAY: So where does all this end up?
FLASSBECK: Well, this is ending up–what we see now, in a kind of currency war that everybody tries to depreciate. But it’s also logically impossible, as well as the debtor-creditor story. So we’re running against, well, a logical barrier, so to say. Call it logical barrier. So whatever barriers it is. And this is something where the world economy was in the ’30s of last century, when we called this competitive devaluation or a currency war and so on. This is a bit what we have now. And all the talk about free trade are nonsense, and [incompr.] TTIP the free trade agreement in Europe and U.S. is not worth the paper it’s written on if the euro is going to depreciate further, because this will be a big loss for the Americans, and the Americans would be crazy to agree to any kind of free trade not including devaluing of the currency. But, you see, the value of the currency for the U.S., on the other hand, is not something they want to talk about, because then the question becomes, so, can we leave it to the market? And that’s what the Americans definitely want, they want to leave it to the market, because Wall Street is making a lot of money with it, trade in currencies. But, you see, sometimes if you allow your people to have good business, it’s bad politics.
JAY: Right. Thanks very much for joining us, Heiner.
FLASSBECK: You’re welcome. Bye.
JAY: And thank you for joining us on The Real News Network.