Inflation Is Avoided Only at the Price of Radical Deflation
Countries are becoming increasingly deeply entangled in the contradictions of monetary policy. Only with the help of unprecedented budget deficits could the global economic crisis initially be absorbed, with no self-sustaining recovery in sight. Now the postulate of a state policy of austerity and debt relief threatens to suffocate the fragile economy once again. The IMF board is flirting with “controlled inflation” as a way to further postpone the unmanageable problem. It is no coincidence that the eurozone has moved to the center of the crisis of monetary policy. The monetary union construct delivered a common central bank to the old national sovereigns with different levels of productivity and unequal capital strength. It was designed to externalize this internal contradiction by means of the globalized deficit economy. As its power weakens, the possible sovereign default of the capital-weak euro countries has become an explosive device attached to the monetary union.
After the guarantees and subsidies for the ailing banking system and the deficit-ridden economic stimulus programs, the EU has now launched a third, even larger rescue package for the state finances of the bankrupt candidates. It is staircase wit [Treppenwitz] that in this situation Estonia is being admitted to the euro community and praised for meeting stability criteria that no longer even exist. The European Central Bank (ECB) has already begun buying worthless government bonds. The problem, however, is not the nominal size of the deficits among the alleged “sinners,” but their lack of capital strength. The nominal deficit, measured in terms of national GDP, is higher in the FRG than in Spain, for example. But the FRG has so far been able to keep its head above water thanks to its immense export surpluses, especially in the eurozone. Since 2009, the other EU states have been pushing to reduce this “imbalance.” On the other hand, it has been said that the FRG should not be punished for its export strength, but that the others should create similar conditions for themselves. However, these conditions consist of the fact that the FRG has the largest low-wage sector in Western Europe and combines this with its capital strength. Moreover, the resulting export surpluses can only be financed by the deficits of the capital-weaker countries.
Now the cat is biting its own tail. The intra-European deficit cycle has come to a halt, exposing the contradiction of the monetary union. The ECB’s unrestrained money glut and the complete abandonment of the Maastricht criteria will only not lead to inflation of the euro if, in return, national budgets are radically cut. At present, the FRG’s political class and media are indulging in national chauvinism toward the “sinners.” Conversely, the left is ranting about the “diktat” of the FRG in the eurozone and the erosion of national sovereignties. This ideological discourse does not want to recognize that there is an interdependence here. The extreme austerity policies introduced to save the euro will inevitably lead to a deflationary shock. When state-induced purchasing power runs dry, not only the general devaluation of labor but also the devaluation of physical and commodity capital will flood the eurozone. This shows that the supposedly autonomous export strength of the FRG in the EU has feet of clay. Rescuing the euro and the banking system, which is already largely dependent on the drip of the state and is now also sitting on ailing government bonds, is only possible at the price of a depression in the capital-weak euro countries. Greece has already set the course for this; Spain, Portugal and other countries will follow. The result can only be an explosion of mass unemployment in the FRG, which in turn will affect the rest of the EU. An austerity policy by hook or by crook in the euro countries with negative trade balances, which is tantamount to a collapse of the German export economy, threatens to put the FRG’s budget, which has long been overstretched itself, in the same position as that of the denounced deficit sinners. Capital strength will then turn into capital weakness. When the deflationary consequences of the austerity dictate become apparent, a new U-turn would lead to a chaotic combination of deflationary and inflationary tendencies (stagflation). The Merkel government is in no position to impose its self-interest on the EU, but is vacillating between the choice of plague or cholera. A fortiori, the clock cannot be turned back to a national economic and monetary area in the sense of a bleating D-Mark chauvinism, which has always been based on a one-sided export orientation. Thrown back on its own domestic economy, German glory would have to give up the ghost completely. The internal contradictions of the European monetary union would thus become the catalyst for the second wave of the crisis.
Originally published in the weekly newspaper Freitag on 05/20/2010
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