The slight upturn in construction that was observed in Europe at the turn of the year has receded in the meantime, just as we expected (figure 1). In the EMU as a whole, construction activity almost fell back to the level of stagnation of the last two years. Even in Germany, where one could have hoped that the provision of accommodation for refugees would provide a stimulus to the construction industry for some time, construction collapsed again. In France, the recession in construction is ongoing.
There is no recovery in Southern Europe either (figure 2). Spain recently saw a short-lived recovery, starting from a low base, which evaporated in the meantime. In Italy, construction activity is now 30% below the level of 2009. In Portugal the difference is even greater. These are both countries that, unlike Spain, witnessed no construction boom before the crisis.
Retail sales have been weak in February and March and this trend persisted in April. This is especially the case in Germany, where retail sales fell in March and then again in April. Retail sales are now significantly less than last winter. Italy also stagnates again. Retail sales are only on the increase in France, which proceeds with its almost uninterrupted positive trend.
In Southern Europe, Spain and Portugal show an extremely slow upward trend, while Greece, incredibly, does not seem to have hit the bottom yet (figure 4). Retail sales continue to sink ever further, even starting from a extremely low basis. Its current values are lower than those of 2013.
As might be expected from a consistently stagnant economy, no serious change in unemployment took place (figure 5). With its rate of over 10% of unemployment, almost ten years after the global financial crisis, Europe breaks a record in terms of failing economic policy. Who wants to know why there is a crisis in Europe needs to look no further.
Europe is also failing in price development (see figures 6, 7 and 8). All consumer prices point towards further deflation. Producer prices very clearly show that the evolution is downwards. Meanwhile, monetary theorists and other observers continue to enjoy themselves by trying to figure out how it is possible that monetary policy is incapable of changing the direction of price development. No one reaches – or is supposed to reach – the conclusion that this due to the permanent pressures on wages, which originates in Germany. The clear relationship between the latest recent German round of wage negotiations, which led to very moderate results, and the failure of Europe to produce normalcy in terms of price stability is simply being ignored.
Economic policy in Europe
Economic policy in Europe is spooky. Europe completely fails to advance its economic development, in the global economy huge storm clouds are gathering, the political turmoil in Europe gets bigger by the hour and those responsible for economic policy do nothing! Yes, the madness is such that those who are responsible prefer to see further government budget cuts. The nonsensical ‘reason’ is that only this will restore the ‘confidence’ of citizens (see, for example what the Chief economist of the Federal Ministry of Finance (here) or Dijsselbloem, the head of the Euro group (here), have to say).
The Germany media remains silent, except for the same old stories. They prefer to write up philosophical essays about why the British came up with the seemingly completely absurd idea of organising a referendum about their EU membership. In the opinion of the German journalists, this has nothing to do with the failure of European economic policy. This point of view is very consistent. It cannot have anything to do with it, because there simply is no such failure. This is vintage mainstream German media. When there are elections in Italy and Rome elects a new mayor from the radically anti-European ‘Five Star Party,’ the German media do not suspect that this result may have anything to do with the European failure in terms of economic policy. The party is consequently called a ‘protest’ party. No one will tell you what they protest against (see for example here).
There is, in actuality, no longer any economic policy. Aside from the desperate attempts by the ECB to further reduce interest rates, there is nothing. Even now, when for the first time in history, interest has become negative on ten-year government bonds, hardly anyone gets the idea that the government should immediately and brutally take advantage of this opportunity to make investments that will benefit the younger generations. These investments will not only cost nothing, they also serve the interests of the affluent sections of society (!). However, from time to time, there is a rare exception that confirms the rule. The Spiegel online actually permitted someone to publish some outspoken heretical arguments (see here).
Nikolaus Piper writes in the Sueddeutsche Zeitung that:
“Today and for some time already, there are growing indications that even negative interest rates are no longer effective to stimulate the economy. Comparatively, Germany is doing very well, but policy-making in Europe is being paralysed by the euro crisis and the refugee question. Right-wing populism poisons the air and reduces the capacity for economic rational thinking on both sides of the Atlantic. In Europe, the ECB’s Mario Draghi has calmed the spirits somewhat with wise words and a lot of money. But today this is no longer sufficient. The policy of easy money has reached its limits. The governments within the EU must recognise that preventing a potential crash depends in increasing measure upon them. There is only one way to go: a resolute policy of growth, fighting the notorious weakness of investment and, fundamentally, by the willingness to act together” (see here).
This is, indeed, very well spoken! But the lofty words are not being followed up. There is no demand geared towards to the Minister of Finance to finally end his absurd austerity policies and to finally go into debt – not a word about it! What we seem to need instead is a ‘determined growth policy, as the manager of a ‘leading’ German journal writes. What this actually means, I do not know and he does not say. There is, in fact, only one solution to all of this and we have always clearly stated it (see for example here): Germany has to forget about its debt limits and go full steam ahead. Only that will still give Europe a very tiny chance.
One now sees in all clarity how absurd the introduction of the debt limit has been. There is currently no acute, major, crisis that makes growing debt impossible and monetary policy is doing everything it is capable of. There is only one way to overcome the European economic slump and avert a major crisis. But this possibility it completely blocked by the foolish German debt limit.
But who in Germany will ever admit this? Those Christian Democrats (CDU and CSU) or the Social Democrats which wrote the debt limit into the constitution (see here)? The Greens, which have nothing else in mind than to stay in the centre? The right wing AfD, which is satisfied when Europe hurts itself? Not even the unions and the left dare to attack this sacred cow. If in such a critical situation, the traditional media completely fails to inform the population of what is going on, the madness continues until it can no longer continue: the big European explosion will, simply, throw all rules overboard.