2013 : the year of economic truths
Five years after the beginning of the banking crisis, 2013 will be the year of economic reflux, which will bring down the post-war industrial model. Several crises will attain their paroxysm. However, not all are of the same scope.
There is - obviously - a general slowing down of the global growth rhythm. It’s a classic phenomenon of conjectural fall-off, which follows periods of expansion, such as the one of 2001-2007. The economy progresses by cycles which alternatively come with contractions and dilatations.
Nevertheless, the true crisis - revealed by recession - concerns excessive non-State debts. In the Eurozone countries, public debts attain nearly 90% of the GDP (which corresponds to national wealth), to which needs to be added the foreseeable deficit of ageing population costs. Total public debt should thus approach 130% of the GDP.
It is completely impossible to reimburse this public debt orderly. Moreover, it poses an obstacle to economic prosperity for two reasons. Firstly, it obliges the State to divert part of public savings towards the financing of its own debt, at the cost of productive economy. Subsequently, interest costs of this debt come with a significant deduction of fiscal recipes.
Europe, which stands against generous yet rigid social systems, has failed for it has not sufficiently nourished its growth engines and production factor mobility. While the whole world was emerging in the market economy, numerous European countries have increased their State weight in economy, the latter often intervening up to 50% of GDP. We have borrowed our financial comfort from our descendants. The cost of this prosperity loan was distant. Today, it is becoming dangerously defined. From this perspective, the crisis has been moving closer to the confrontation with the future of a generation. The welfare state model and our fiscal and social systems will not come out of it unscathed.
Public debt constraint is aggravated by budgetary cohesion linked to the euro. Indeed, the single currency requires Member State economic parameter homogeneity. Yet, these parameters diverge dangerously, for lack of having succeeded, during the first years of the single currency, in creating a sufficiently free trade zone. Today, the euro is a currency that is too strong for the staggering European economies.
How to root out this situation, stuck in between a recession, untenable public debts and an unadapted currency? Of course, we have to undergo collective impoverishment to release future economy productive forces. It thus concerns an internal devaluation. Two ways can be outlined: budgetary solution and successful monetary outcome.
Budgetary solution leads to the introduction of austerity measures, despite the historical obviousness that the latter nourishes recession and unemployment. This is the situation in the Mediterranean countries, some of which are on the verge of insurrection, for austerity is being carried out to the detriment of the youth. Besides, who can believe that the objectives to return to budgetary equilibrium in 2015 are founded?
Now, which solution is residual? Intuitively, one would say it is monetary solution which will be translated in a combined financial repression and inflation.
Financial repression corresponds to state-controlled banks and interest rate levels so as to canalize working-class savings authority towards public debt financing.
Inflation is nourished by the monetary creation that is carried out by the central banks so as to refinance public debts. In other words: it is monetary creation that will finance the welfare state’s financial black hole. Moreover, the majority of renowned economists recommend raising European Central Bank inflation objectives, currently fixed at 2%, for it is impossible to absorb public debts while maintaining purchasing power.
Moreover, the question is no longer to know whether inflation will be imposed or not: it is already insidiously infiltrating our economies, whereas recession should rather have led to deflation, i.e. fall in prices. We have entered stagflation, i.e. a perverse chemistry of stagflation and inflation.
Nevertheless, inflation as such does not solve anything if it is reflected in permanent labour and capital cost adjustments. It is only operating when absorbed by economic agents which suffer its impoverishment. In other words, we have to undergo inflation via the lowering of our labour and savings remuneration.
That notwithstanding, the true question is to know whether we will have the time to use the weapon of inflation to adjust public debts against a backdrop of recession. Some economists consider that social collisions will disturb an orderly exit from the crisis and that even worse phenomena, such as massive debt rescheduling, will be inevitable. Some even talk of generalised Eurozone failing, of a scope comparable to operation Gutt in 1944. Is this daunting vision of economy conceivable? It is hard to imagine but it mustn’t be excluded for monetary order never resists social forces.
Should the future confirm these horrifying previsions, it would be a major financial aggiornamento which will have consumed a growth based on debts and the demographic postponement of its societal reimbursement. Social break-ups would then lead to the abandoning of market economy and generalised nationalisation of our communities.
The race against the clock has started for 2013 will see various parameters being adjusted: social relations and wealth repartition, collective and individual interest juxtaposition, as well as currency value.
The crisis reminds that those who let themselves by carried along by vague consensus and dominated by collective fears are neither actors of break-up, nor factors of progress.
The year 2013 will consume the finitude of old ways of thinking.
It will be a decisive year.
