Mathew D. Rose – The Phoney Recovery

July 10, 2020 by https://braveneweurope.com/

The economic recovery is progressing really well in the EU – if you believe the EU political class and mainstream media. It isn’t. And with a lack or leadership and competence there is a rude awakening awaiting us.

Mathew D. Rose is an Investigative Journalist specialised in Organised Political Crime in Germany and an editor of BRAVE NEW EUROPE.

(Photo credit should read NIKLAS HALLEN/AFP/Getty Images)

On September 3rd 1939 – following the invasion of Poland by Germany – Britain and France declared war on the Germans. Then nothing really happened – for eight months – until the Germans invaded the Low Countries and France on May 10th 1940. This hiatus was referred to by many as the “Phoney War”. What came after was one of the most horrific episodes in the history of Europe and much of the world.

If you follow mainstream media and listen to most politicians, we are already in the midst of a V-formed economic recovery following the coronavirus collapse. Any statistic supporting this is at the top of the news. We are bombarded with pictures of people waiting in queues outside stores, eager to spend, spend, spend. And what sort of benchmarks is mainstream media using? The stock markets, GDP, petrol and energy consumption, the number of people flying, car use and sales. Those who had hoped that the economic interruption caused by the pandemic might result in a rethink incorporating an adequate response to climate change can surely read the writing on the wall. In fact the current crisis is being used to roll back environmental standards, as seen last week with the UN’s aviation emissions offsetting scheme, interestingly initiated by the EU. However the only V-formed recovery we are experiencing are the stock markets. We are seeing an intensification of destructive capitalism instead of a reset.

So what is the economic programme of the EU and its member states? Despite the brouhaha of European Union action plans, the real plan seems to be same as in the Great Financial Crisis a decade ago: China. Yes, and transferring wealth to corporations and the 1%. Again the Chinese government is pumping up its economy, increasing already existing asset and debt bubbles, building new coal-fired power stations to provide energy for new steel and cement works, to build more infrastructure and housing. The Chinese government too is providing its citizens with loads of cash to buy stocks, driving up the bourse and making people feel wealthier. These measures, at least in the reasoning of Europe’s political class, will enable Chinese consumers to buy German cars, American high-tech products and services, French and Italian luxury goods, Swiss watches, etc…not to mention travel to Europe in masses as tourists.

This may not seem like much of a plan. But what do the EU and its leaders have to offer? Not much really. The much heralded Merkel-Macron plan, which has a German/French bias, does not even exist beyond media headlines and commentaries. Most of the grants being considered – should they materialize – will not be available until 2023, according to the think tank Bruegel. The question is whether the EU political class is even capable of thinking outside of the neo-liberal corporate box. Actually, no. They have been paid by vested interests to repeat the mantra that the free market will regulate the economy best, and when it has trouble, the state only needs to provide it with hundreds of billions of euros taken from its citizens through austerity.

What is actually happening on the ground in Europe? One probably should best start with unemployment. According to Eurostat, unemployment in the EU has risen from its twelve year low of 6.4% in March to 6.7% in May. This is truly nugatory in comparison to the United States, where the unemployment rate jumped from 3,5% to 14.5%.

The explanation for this discrepancy is multi-faceted. First there are around 40 million workers on furlough in the largest EU economies – Germany, France, Spain, Italy, and the Netherlands – with their governments paying a major portion of their wages. That is 12% of the EU workforce. In the UK it is a quarter of all workers (9 million).

Then there is the question of the accuracy of the unemployment figures provided by governments, who have been grooming their systems of counting the unemployed over decades to keep the numbers artificially as low as possible. A case in point was Italy, where in May there was a marked increase in unemployed because many without jobs had not been included in the statistics. Because of the lockdown they could not seek a job and were therefore classified instead as “inactive”. Following the lockdown they were again trying to obtain employment, thus rejoining the statistical unemployed. Same person, same unemployment. Different statistic.

What is also not accounted for in the statistics is the tens of millions of self-employed and those working illegally who are muddling through with no state support. As we learnt from the Greek crisis, for many in Southern and Eastern Europe, the family becomes the social safety net (Spain, for example, after joining the EU over 30 years ago finally introduced a national minimum income scheme). We know that a large number of EU migrant workers returned homewards East and South because of the pandemic and ensuing lockdown. If they have jobs to return to is unclear. Add to all these those who may still be working, but with reduced hours and pay.

It appears that no one really knows what the effects of the pandemic crisis have been or are with regard to the EU workforce. One thing is clear, a massive amount of money is no longer going into the pockets of EU workers, which means they have a massive amount of money less to spend. Spending is however crucial for an economic recovery. And no one is mentioning the wave of massive unemployment rolling towards the EU.

What helps us somewhat are figures concerning production and sales. The surge in retail sales in May in the EU are not a bellwether, but the result of consumers who for weeks or months could not shop for non-food goods at stores. Other numbers tell a different story.

In the EU 2.6 million people work in the direct production of motor vehicles. That is 8.5% of the EU workforce. In the first six months of this year sales fell by 35 % in Germany, in Spain by 54%, Italy 50%. In its most important export markets, the USA, China, and Britain, in the same period car sales fell 23%, 27%, and 51% respectively. In general Germany’s factory orders in the first quarter and May 2020 were around 30 per cent lower than in the same period in 2020.

The numbers for transportation of people and goods, especially among airlines, are similar, if not worse. There are still no official figures, but following anecdotal information the tourist industry is not going to see a V-formed recovery, although staycations may well take out some of the sting.

Even more dramatic is the current account surplus of the EU, which has held its economy above water for the past decade through massive exports. In the first quarter of 2019 there was a plus of 102 billion euros. In the same quarter of 2020, although the pandemic was just commencing in China in January, the surplus was just 59.9 billion euros. Considering that 57.6 billion euros of this surplus came from trade with the UK, which may well leave the EU without a trade agreement at the end of the year, there is surely reason for concern. And who is going to buy all these exports, where economies outside of Europe are equally hard hit by the pandemic crisis? Right, China.

On the basis of such numbers we are all to believe in the V-formed recovery. Not in the equation are trade wars, especially with China, and a second wave of coronavirus. Both are very real possibilities at the moment.

As we know, there are a number of zombie (mainly carbon intensive) corporations in the airline, retail, hospitality, car industry, among others receiving hundreds of billions in state support. Most of this has been in the form of a loan, which helps a company that is in a cash flow crisis, but not if it is simply insolvent. This distinction is not being made. In fact eventually these corporations will be crushed by these new debts, which they will never be able to repay. That means that governments will have to either have to write off these loans, convert them into grants, or receive shares in these insolvent firms; or simply let them go bankrupt, which is currently not likely in the neo-liberal free market economy.

To counter the bitter taste left by excessive support for big corporations in many EU nations, this obscene generosity has been accompanied by a sprinkling of funds for small businesses and self-employed. It is laudable that some EU governments have decided for a furlough scheme for some of their workers. This has served as something of a financial buffer for employees – and certainly one for companies. Firing a worker in Germany, for example, is a very costly, drawn out procedure.

Still, neo-liberalism is hardwired into the EU, and its political class is already chomping at the austerity bit. The current social response means giving money to workers, which in the framework of a limited deficit, results in less to distribute to corporations, including bankrupt ones. Thus austerity will soon be back on the agenda to finance the massive transfer of wealth to corporations as we saw after the 2008 Great Financial Crisis. One may legitimately assert that this will further weaken domestic demand, while the export market is in desperate straits. Who should buy the cars, flights, petrol, goods – besides the Chinese? This sort of simple economics is beyond the EU political class.

What EU politicians have understood thanks to their instinct for political survival is that now is not the right time for austerity. There is still too much resentment about the generous bailout for corporations and shrinking incomes for millions of EU citizens. We are seeing furlough and similar programmes being extended at least until the Autumn. But Autumn is very close to the holiday season and most politicians understand that you do not introduce massive austerity just before Christmas. Thus until then we will enjoy a Phoney Recovery and continued social – probably somewhat reduced – support in the largest EU economies of those workers hit by the current recession. But come the new year this phase will be over and the neo-liberal economic class war will break out with horrific results. Until then we can all believe in the Phoney Recovery over the summer holidays and festive season.