Orbán’s cabinet: 2019 budget serves economic growth, higher wages

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1. Sander Driessen says:

   31/07/2018 at 18:27

   The well-known German top economist Hans-Werner Sinn, until recently president of the Ifo Institute for Economic Research, writes that the fate of the euro zone will be decided in the next 10 years. The signs are certainly not favorable because ‘only a few will be able to honestly say that the euro has been a success. The great sociologist Ralf Dahrendorf was right when he concluded that the currency union is a serious mistake, a Don Quixote, reckless and misguided goal that will not unite Europe, but will break out. The euro actually began in 1998 with the establishment of irrevocable exchange rates in preparation for the arrival of a tangible currency. After a huge credit bubble in Southern Europe was first sparked in the first decade, a whole series of complex monetary and transfer rules came into being in the second decade. The first decade felt like a big party, especially in southern Europe, but the second decade brought the inevitable hangover. And now that we are entering the 3rd decade, a mood of political radicalization predominates. Until 2008 it did not seem possible for the euro zone. The Southern member states were suddenly able to borrow much cheaper money under the cover of the euro, and they did so en masse, especially to ‘do nice things for the people’. They also issued bins with money, which created a substantial – but largely artificial – economic growth. After the outbreak of the financial crisis in 2008, Southern Europe was in debt much deeper than before and their economies were still not sufficiently competitive. The capital markets refused to loan them cheap money for a long time, and they ended up in serious problems. Instead of restructuring their economies and social systems, the southern Europeans opted for the time-honored route, namely the instigation of the money presses, assisted by the European Central Bank that the agreed strict rules were specially adapted for this. As a result, hundreds of billions of euros were drawn from the monetary system through this Target system. After 2010, these countries also received the necessary extremely expensive ‘rescue packages’. As this was still not enough to reassure the financial markets, the ECB gave a guarantee for buying unlimited government bonds from 2012 onwards, so that they de facto change in eurobonds. In 2015, the ECB then started buying up € 60 billion per month to € 90 billion in (state) debt, causing the monetary base of the eurozone to increase dramatically from € 1.2 trillion to over € 3 trillion, with no noteworthy economic growth. But instead of investing this money in the modernization of their own economies, as in the 1st decade, ‘nice things’, services, real estate and even entire companies were purchased, especially in Germany, which saw an enormous increase in its export surplus. The German Bundesbank was still guarantor via the ECB and to a lesser extent also the Dutch, Luxembourg and Finnish central banks. Meanwhile, there is almost € 1 trillion on the German Target balance sheet, Spain € 400 billion and Italy € 500 billion. These are actually digital debates that will never be paid again, especially if it is not considered that the southern European countries are far from strong enough. In Portugal, Italy, Greece and Spain the industry still produces 14% to 21% less than before the crisis, and youth unemployment varies from 20% to 45%. According to Sinn there is less and less hope that things are going well because in Portugal, Spain and Greece, radical socialists are now in power, traditionally known for spending unlimited money (at the expense of others and ultimately the whole society, with the exception of the socialist elite itself). Italy has its first ‘populist’ government of leftists and judges who also want to increase the already enormous indebtedness of the country, so that tax reductions and guaranteed income can be paid. This cabinet is literally threatening to blow up the euro if the EU refuses to pay the huge bill for this. Given these facts, even the biggest euro enthusiast can not honestly say that the single currency has been a success, Sinn concludes. Europe has clearly been overstretched. Unfortunately, the great sociologist Ralf Dahrendorf was right when he concluded that the currency union is a serious mistake, a Don Quixote, reckless and misguided goal that Europe will not unite, but will break up. It is therefore very difficult to see how it should proceed now. Some – including the Eurocrats in Brussels – find that the debts of the eurozone too must be thrown together in one heap, as a result of which the Germans, the Dutch and Finns in particular must continue to finance the far too high expenditure of the Southern Europeans – and this at the expense of their own prosperity – has been done for years). Others warn that this will throw the EU into an even deeper swamp of irresponsible financial mismanagement, with ultimately very serious damage for all the economies involved. And that while we as Union already have so much trouble to compete with China and now also Russia and America. The third decade of the euro will in any case determine its fate, Sinn concludes. Because there has been practically nothing else for over 20 years than living on the puff and there is no indication that this is going to change – on the contrary, the urge is to even more ‘Union’ even more ‘unity’ – cannot this be the end of a gigantic depreciation of the euro and the permanent end of our prosperity as we know it today, with undoubtedly major social unrest, uprisings and possibly even civil wars as inevitable reactions. Please Hungary, stay with your HUF and let the Euro be the Euro.