How Europe’s Solution for Economic Crisis is Actually the Problem

Europe‘s current crisis is more than economic. Between the German government advocating a dangerous austerity policy and European authorities lacking any other suggestions, it is clear that the 2008 financial crisis is no longer solely responsible for the downward spiral of Europe.

The GDP for countries in Europe has fallen by a considerable amount: 5.3% for Greece, 3.9% for Portugal, 4.1% for Cyprus, 2.3% for Italy, and 2% for Spain. This is without even mentioning the recession into which France is entering. In the first quarter of this year, the European Union economy contracted by 0.7%, or one percent when only taking into consideration the eurozone.

If it was only the 2008 economic crisis that was responsible for all this, Europe would not be one of the only one to suffer so much. For example, the United States, the birthplace of this crisis, registered a 1.9% increase in their economy in 2013 [fr] while their unemployment rate was at its lowest in four years.

Europe, which for a long time has aimed to maintain growth that compares favorably with  United States, now finds itself completely lost among incoherent policies and disputes between countries[fr].

One of the main reasons for this current instability in Europe is the evident failure of the European policy authorities when their proposals seem more than enigmatic. Restricting interchange fees as proposed by Michel Barnier, the European Union Commissioner for the Internal Market and Services, is a perfect example of the Commission taking measures that will not have any concrete impact.

Capping interchange fees, bank charges paid by retailers when they make a card payment, would not only increase personal bank charges [fr], as the banks would want to recuperate the money lost by this cap, but the retailers profit margin will also increase, as they rarely lower their prices just because their costs have decreased.

The other significant issue which has notably accelerated the decline of Europe is the restricted austerity policy which the majority of EU countries have undertaken. It would be more logical for Europe to take inspiration from the countries that have pulled through, i.e. the United States, in order to stimulate the market rather than only focusing on reducing the deficit.

Youth unemployment rate in Europe between 2005-2013 via Les Crises – public domain

The most frustrating aspect about this issue is that the majority of the European leaders agree on this point, but no one dares to confront the life-long defenders of austerity, also know as « Sparkurs » [de] in Germany and its strict chancellor, Angela Merkel [fr]. But there are also critics of austerity on the German side. Last week, Gilles Moëc, head economist at Deutsche Bank, admitted to the news outlet Agence France-Presse that “there were some errors” [fr] in the selected strategy.

However, it’s not as if the Merkel method was fully tried and tested, in fact, it was far from it. Portugal, for example, had never been in such a terrible state until it was subjected to the European austerity policy. In two years, its unemployment rate increased by 5.3%, its budget deficit by 1.1%. As for its public debt, it’s now 123% higher than its GDP.

Julio Salazar Moreno, Secretary-General of Spanish worker’s trade union, USO, believes that the countries within the European Union need to stop with the austerity policy [pt], according to online newspaper Público:

Os países da União Europeia (UE) têm de parar “de uma vez por todas” com a aplicação de medidas recessivas, porque os cidadãos, alerta, estão a viver no limite dos sacrifícios

The countries within the European Union (EU) must refrain from enforcing austerity policies “once and for all” because the alert citizens are living at the very limits of their possible sacrifices.

The sledgehammer approach is just as inefficient for Greece, claims Gregor Gyzi, a president from a left-wing parliamentary group in Germany, Bundestag, by addressing the Greek readers [el] of news247:

οι επιβληθείσες, κυρίως από την γερμανική κυβέρνηση, περικοπές σε μισθούς και συντάξεις, οι απολύσεις και οι ιδιωτικοποιήσεις, όχι μόνο ώθησαν την Ελλάδα σε βαθιά ύφεση και κοινωνικά προβλήματα, αλλά κατέστησαν και αδύνατη την επιστροφή των δανείων στο εγγύς μέλλον

Imposed primarily by the German government, salary and retirement cuts, redundancies and privatisations, are not only going to push Greece into a major recession and cause social problems, but its also going to make loan repayments equally impossible.

Emigration figures for Europe are also far from surprising. In two years, 2.5% of the Portuguese population left the country. Who would have said ten years ago that today many Europeans would leave the continent to work in countries like Angola or Brazil?

Facing this alarming development, it is even more depressing to hear the responses of others, like that of the Prime Minister of Luxembourg, Jean-Claude Juncker, also the former minister of the Eurogroup, who recently gave his thoughts on the European crisis [fr] and concluded that what Europe needs is some “TLC”: a statement which speaks for itself.

Written by Laurent Delors · Translated by Hayley Warden

Banks should separate retail banking from investment to shield taxpayers from further bailouts – EU – European, Business – Independent.ie

BANKS should separate deposit taking from trading and other high-risk investment banking work to shield taxpayers from further bailouts and protect savers, an EU advisory group said on Tuesday.

The advisers also single out the risks of property lending and said it should be underpinned with larger capital reserves. The European Commission set up the group of experts, led by Bank of Finland Governor Erkki Liikanen, to examine bank structures.

The report will reignite a debate in Europe about reforming banks but it is unlikely that the EU’s executive, the European Commission, will respond soon with new regulation.

It is more focused on winning backing for its separate banking union plans to make the European Central Bank the main supervisor for euro zone lenders, a step which non-euro zone states have deep concerns about.

“The group has concluded that it is necessary to require legal separation of certain particularly risky financial activities from deposit taking banks within the banking group,” said the report.

“The activities to be separated would include proprietary trading of securities and derivatives, and certain other activities closely linked with securities and derivatives markets.”

The recommendations borrow from policies already being implemented in Britain to ring-fence retail banking and in the United States to curb banks’ proprietary trading or taking bets with own money.

The report also backs the idea of bail-in debt, a mechanism to impose losses on bondholders in the case of a banks’ bailout or collapse. The Liikanen group suggests that bankers should accept this type of bond as part of their bonus.

Legally separating or ring-fencing investment banking would make it easier for the part of the bank that holds savers’ deposits and lends to businesses to keep running even if other parts of the group collapsed, some banking experts say.

via Banks should separate retail banking from investment to shield taxpayers from further bailouts – EU – European, Business – Independent.ie.

via Banks should separate retail banking from investment to shield taxpayers from further bailouts – EU – European, Business – Independent.ie.