Tuesday, February 4, 2014

"Situation Impossible"

Greek economist Costas Lapavitsas says "The Euro has Already Failed" and it's "Situation Impossible" for France.

Via translation from La Vanguardia here is the complete interview ....

LV: When I interviewed you for the first time in late 2011, you said that the ECB was not the magic solution to the eurozone crisis. Then in July 2012 Mario Draghi stated "The ECB is ready to do whatever it takes to preserve the euro and believe me, it will be enough." Do you still believe that the ECB is not the solution?

CL: The ECB is not the solution. What happened in 2011 and 2012 is that the peripheral countries accepted the austerity demanded by Berlin and Brussels. They accepted wage cuts and unemployment. Their economies are headed for a recession. Have stabilized public finances and external deficit has stabilized. The fundamental answer is recession.

LV: Is that what the ECB wanted?

CL: The announcement of Mario Draghi pacified the financial markets but only because  recession was accepted by the population in the peripheral countries. The ECB did not solve the crisis in the real economy.

LV: Are we far from a stable eurozone crisis solution?

CL: The ECB stabilized the fiscal deficit and the trade deficit and hence financial markets. But the crisis has become a crisis in the real economy. There is foul growth and impoverishment.

LV: Has the crisis moved from the periphery crisis to other countries?

CL: Yes. The euro crisis has moved to the heart of the eurozone. France and Italy are now facing the same problems as the periphery in 2010 and 2011. The crisis is now in France and Italy.

LV: Is there more inequality now than at the beginning of the crisis?

CL: Of course. Here's how the situation has stabilized: recession, austerity without growth, more impoverishment and huge social problems for most of the working class.

LV: Can we forget the idea introduced a couple of years ago regarding a two-speed euro?

CL: I do not think it's going to be a two-speed euro. I think the policy that comes from Berlin and Brussels is the austerity of all European countries. France is now in a situation impossible. The real problem in the eurozone is now France. It has great competitiveness gap with Germany.

LV: Why?

CL: The competitiveness gap that the periphery had in 2010-11 is now in France. Wages in Germany have gone up a bit or frozen, wages in France have grown in line with inflation. This gap makes it difficult for the French economy to grow significantly. If France is moving towards austerity, as the periphery, Europe faces serious problems. Depression. And France is facing huge social and political problems. The eurozone crisis has moved to the heart of the euro.

LV: How does situation look in five years?

CL: It is difficult to say precisely. The eurozone will continue to be unstable as in recent years. It will be even worse than now because of tension between France and Germany. The currency is not sustainable. If the common currency fails, the EU is facing a huge crisis.

LV: Do you think that the euro will fail?

CL: The euro has already failed. It was a project that was supposed to create convergence, growth and solidarity between the peoples of Europe, it was supposed to create a commonality among Europeans. The euro has created divergences, recession, poverty, it is like a straitjacket for Europe, increases the national and the social tensions in Europe. It succeeds now only because it instills fear. I do not think this is sustainable for long.

LV: How is the situation in Greece?

CL: Greece is a mess. In 2010 Greece should have left the euro and put its economy in another direction. The economic and social catastrophe in Greece is worse than what happened in Argentina in the late 90s and early 2000. This is what happens when you're within this monetary structure that is the euro.

LV: This is your first trip to Barcelona. How do you assess issues such as the independence of Catalunya?

CL: The situation in Barcelona is very interesting. I am very surprised by the strength of  the independence movement in Catalonia. I'm amazed by the vitality of social movements. Yet, I think the level of understanding of the economic problems of Spain and Catalunya are not as high as they should be.

LV: Why?

CL: I think there should be more understanding of the implications of would happen if there was eventual independence in the Catalan economy. There is a lot of complexity that is not completely understood. Social movements in Catalonia need to further discuss these issues.

Mish Comments

I have little to add other than I agree with  Costas Lapavitsas on major points. The euro has already failed. The question is: when will that be politically recognized?

Mike "Mish" Shedlock

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