All of the suffering in Europe – inflicted in the service of a man-made artifice, the euro – is even more tragic for being unnecessary, writes Joseph Stiglitz

“If the facts don’t fit the theory, change the theory,” goes the old adage. But too often it is easier to keep the theory and change the facts – or so German chancellor Angela Merkel and other pro-austerity European leaders appear to believe. Though facts keep staring them in the face, they continue to deny reality.

Austerity has failed. But its defenders are willing to claim victory on the basis of the weakest possible evidence: the economy is no longer collapsing, so austerity must be working! But if that is the benchmark, we could say that jumping off a cliff is the best way to get down from a mountain; after all, the descent has been stopped.

But every downturn comes to an end. Success should not be measured by the fact that recovery eventually occurs, but by how quickly it takes hold and how extensive the damage caused by the slump.

Viewed in these terms, austerity has been an utter and unmitigated disaster, which has become increasingly apparent as European Union economies once again face stagnation, if not a triple-dip recession, with unemployment persisting at record highs and per capita real (inflation-adjusted) GDP in many countries remaining below pre-recession levels. In even the best-performing economies, such as Germany, growth since the 2008 crisis has been so slow that, in any other circumstance, it would be rated as dismal.

The most afflicted countries are in a depression. There is no other word to describe an economy like that of Spain or Greece, where nearly one in four people – and more than 50% of young people – cannot find work. To say that the medicine is working because the unemployment rate has decreased by a couple of percentage points, or because one can see a glimmer of meager growth, is akin to a medieval barber saying that a bloodletting is working, because the patient has not died yet. Extrapolating Europe’s modest growth from 1980 onwards, my calculations show that output in the eurozone today is more than 15% below where it would have been had the 2008 financial crisis not occurred, implying a loss of some $1.6 trillion this year alone, and a cumulative loss of more than $6.5 trillion. Even more disturbing, the gap is widening, not closing (as one would expect following a downturn, when growth is typically faster than normal as the economy makes up lost ground).  Simply put, the long recession is lowering Europe’s potential growth. Young people who should be accumulating skills are not. There is overwhelming evidence that they face the prospect of significantly lower lifetime income than if they had come of age in a period of full employment.

Meanwhile, Germany is forcing other countries to follow policies that are weakening their economies – and their democracies. When citizens repeatedly vote for a change of policy – and few policies matter more to citizens than those that affect their standard of living – but are told that these matters are determined elsewhere or that they have no choice, both democracy and faith in the European project suffer. France voted to change course three years ago. Instead, voters have been given another dose of pro-business austerity. One of the longest-standing propositions in economics is the balanced-budget multiplier – increasing taxes and expenditures in tandem stimulates the economy. And if taxes target the rich, and spending targets the poor, the multiplier can be especially high. But France’s so-called socialist government is lowering corporate taxes and cutting expenditures – a recipe almost guaranteed to weaken the economy, but one that wins accolades from Germany.

The hope is that lower corporate taxes will stimulate investment. This is sheer nonsense. What is holding back investment (both in the United States and Europe) is lack of demand, not high taxes. Indeed, given that most investment is financed by debt, and that interest payments are tax-deductible, the level of corporate taxation has little effect on investment. Likewise, Italy is being encouraged to accelerate privatisation. But prime minister Matteo Renzi has the good sense to recognise that selling national assets at fire-sale prices makes little sense. Long-run considerations, not short-run financial exigencies, should determine which activities occur in the private sector. The decision should be based on where activities are carried out most efficiently, serving the interests of most citizens the best. Privatisation of pensions, for example, has proved costly in those countries that have tried the experiment. America’s mostly private health-care system is the least efficient in the world. These are hard questions, but it is easy to show that selling state-owned assets at low prices is not a good way to improve long-run financial strength. All of the suffering in Europe – inflicted in the service of a man-made artifice, the euro – is even more tragic for being unnecessary. Though the evidence that austerity is not working continues to mount, Germany and the other hawks have doubled down on it, betting Europe’s future on a long-discredited theory. Why provide economists with more facts to prove the point?

• Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University. His most recent book, co-authored with Bruce Greenwald, is Creating a Learning Society: A New Approach to Growth, Development, and Social Progress.

In a debt based system, the only real growth you can have is via increasing debts. But you can't have infinite debt, so booms and busts are inevitable. However, this bust has been delayed for so long that it will be gigantic... Please prepare - get extra food in. Get to know your neighbours. Learn survival skills. Pray....Global debts have reached a record high despite efforts by governments to reduce public and private borrowing, according to a report that warns the “poisonous combination” of spiralling debts and low growth could trigger another crisis. Modest falls in household debt in the UK and the rest of Europe have been offset by a credit binge in Asia that has pushed global private and public debt to a new high in the past year, according to the 16th annual Geneva report. The total burden of world debt, excluding the financial sector, has risen from 180% of global output in 2008 to 212% last year, according to the report.  The study by a panel of senior academic and finance industry economists accuses policymakers in many countries of failing to spur sustainable growth by capitalising on historically low interest rates while deterring exuberant lending.

It called for Brussels to write off the debts of the eurozone’s worst-hit countries and urgently embark on a “sizeable” programme of electronic money creation or quantitative easing to push down long-term interest rates. It said unless policymakers kept a lid on risks in the financial system, especially overvalued property and stock markets, a trend for investing in assets with borrowed money could run out of control. The Geneva report, which is commissioned by the International Centre for Monetary and Banking Studies, follows a study earlier this year by the Bank of International Settlements (BIS), which diagnosed the same problem, but said risky borrowing could only be discouraged by higher interest rates.

The Geneva report instead argued a concerted effort to tackle the after-effects of the crisis was needed to mitigate a “poisonous combination of high and rising global debt and slowing nominal GDP [gross domestic product], driven by both slowing real growth and falling inflation”.

The ECB and the Euro have not united Europe in any way since their inception - other than a common un-payable astronomical debt via a common currency! The EEC was a far better instrument for uniting Europe - with each government controlling its own borders and in control of their own currencies - and their own prices! Central banks such as the FED and the ECB are screwing the life out of the working man and having a right laugh about it too with their corporate and politician underlings! As just one example, in 1955 the starting wage at a John Deere plant in the USA was $13.50 an hour and gasoline cost 25 cents a gallon back then! It now costs $4 a gallon which is 16 times higher - but the minimum wage in the USA is around $7 an hour. And guess what - the starting wage at John Deere is still $13.50 an hour! According to the cost of gasoline it should be 16 x $13.50 = $215 dollars an hour!!! Similar scenarios are playing out in Britain and the rest of Europe as well! So when the bank controlled media starts spouting about real growth - I would say that is a load of horse manure! Actually, the truth lies in not just "debt forgiveness" but in "debt-free money" directly from government treasuries everywhere... value based on individual GDPs. But the central bank stockholders who meet at the Bank of International Settlements in Switzerland will not relinquish their 6.66 % (how odd) of the entire national debt of the Western World very easily! Assassinations, wars, and depressions are just some of the tricks they pull out of their hats to keep us all enslaved to debt-based money! The only solution would be to have leaders with "balls" open their books, throw the buggers in jail, and then start printing currency based on good faith and national assets. Organizations like Positive Money in the UK are trying to spread awareness of this major problem in our economies! Let's hope they are successful!

Nato's new secretary general, Jens Stoltenberg, says the alliance wants constructive ties with Russia - but Russian policy in Ukraine must change.  On his first day as head of the 28-nation alliance he said "we need to see clear changes in Russia's actions".

Nato accuses Russia of supporting pro-Russian separatists in eastern Ukraine with heavy weapons and soldiers. Russia admits only that Russian "volunteers" have gone there. Shelling in Donetsk has jeopardised a ceasefire. "We have to see that Russia changes its behaviour and its actions and returns to compliance with international law and its obligations," Mr Stoltenberg told a news conference in Brussels. A former prime minister of Norway and centre-left politician, he has taken over the Nato job from Anders Fogh Rasmussen, a former conservative prime minister in Denmark.

'A strong Nato' Nato is bolstering its presence in the former communist countries on Russia's western borders, which are now Nato members. "I see no contradiction between a strong Nato and our continued effort to build a constructive relationship with Russia," Mr Stoltenberg said. He said Nato would continue to support Ukraine as an "independent, sovereign and stable" nation.

Ukraine is not in Nato, but the alliance says member states are free to supply weapons to Ukraine if they want to.

Since Russia annexed Crimea in March, forcing Ukraine to abandon its bases there, Nato has halted practical co-operation with Russia but kept political channels open.

Eurozone growth was flat in the second quarter and the latest evidence suggests the weakness continued in the third. The ECB is battling to prevent outright deflation in the 18-member region, with inflation perilously low at 0.3% in September - sharply lower than its target of close to but below 2%. Draghi appeared more concerned about low inflation than recent months, but added: “As all our measures work their way through to the economy they will contribute to a return of inflation rates to levels closer to our aim.”

He said France must implement structural reforms and stick to the EU’s deficit rules, a day after Paris announced a budget that would not bring its deficit under the required 3% of GDP until 2017. “Each actor has his role to perform,” Draghi said.

Christian Schulz, senior economist at Berenberg, interpreted Draghi’s comments as “a stark warning to France to live up to the fiscal adjustment commitments it made in previous budget rounds”.

Schulz added: “Since the ECB is involved in reviewing the budgets as part of the European semester which starts in mid-October, France could be headed for stiff headwinds, up to financial penalties being imposed by the EU Commission. Since these could only be averted by a qualified majority of the member states, France faces an uphill battle and will probably have to make significant concessions. If not on fiscal targets, than on structural reforms.”

Today is the anniversary of German reunification in 1990. Merkel's speech, on Austrian TV, contains the following (my translate). "I know I repeat and repeat this issue and many thing it is insignificant, but I will keep repeating it because only by doing what we do are we showing how to resolve our European problems. If we do not continue with our method we, here in Europe, will soon not be taken very seriously. We Europeans must stick to the principles and treaties we have founded and put in place for ourselves, including the Growth and Stability Pact."

I think those remarks, the frankest I've heard from Angie, are directed at France, the other throne in the dual monarchy, and to some growing extent Italy. Interesting times ahead, especially as the ECB is empty and we are going to discover quite a few banks are void too, and not just in the GIPIS group.

LATE EDIT - I found this too!

French 2015 budget statement -“No further effort will be demanded of the French, because the government – while taking the fiscal responsibility needed to put the country on the right track – rejects austerity.” This was yesterday...."European companies continued to struggle this September, as continued weakness in France took a turn for the worse.

Key gauges of private sector strength slipped, failing to meet the expectations of analysts. The composite purchasing managers’ index (PMI) reading for the euro area as a whole dropped to 52, from 52.5 in August.  While above 50, and thus implying private sector growth across the currency bloc on average, the data suggest that the pace of growth fell.  A consensus poll of economy watchers suggested that the headline reading would only deteriorate to 52.3 in September. 

"The PMI suggests the eurozone economy remained stuck in a rut in the third quarter", said Chris Williamson, of Markit, who compiled the report. "

The International Monetary Fund describes public infrastructure spending as "one of the few remaining policy levers available to support growth"...All the advanced economies should take advantage of ultra-low borrowing costs to lift spending on key infrastructure projects and boost the global recovery, according to the International Monetary Fund.   The IMF said a debt-funded investment spree could "pay for itself" if projects were chosen wisely, as government spending would stimulate demand, create jobs, and support longer-term growth.  "In advanced economies an increase in infrastructure investment could provide a much-needed fillip to demand and it is one of the few remaining policy levers available to support growth, given already accommodative monetary policy," the IMF said in a chapter of its World Economic Outlook.  The Fund suggested the eurozone could benefit most from ramping up infrastructure spending because it said policies were most effective in low growth, high quality infrastructure economies that were currently running below their potential. Borrowing costs in some European countries have fallen to record lows amid a pledge by the European Central Bank (ECB) to keep interest rates low and policy loose for an "extended period". The IMF said borrowing at ultra-low rates to finance infrastructure spending would have a much bigger impact on growth than if policymakers raised taxes or cut spending in other areas to make the policy budget neutral. While public debt would increase, so would growth, keeping the debt-to-GDP ratio stable, the IMF said. However it warned against governments embarking on a blind spending spree, which would push up debt piles without stimulating growth. Spending on infrastructure would only have a positive impact if policymakers conducted "rigorous" cost-benefit analyses to ensure that public money was not being spent on wasteful projects that provided little return.  "Countries shouldn't spend on whatever they want. It's really critical that countries choose the right projects and invest efficiently," said Abdul Abiad, IMF deputy division chief...Even the IMF is acknowledging supply side economics doesn't work.  Stimulus put into the top of the system, banks, according to supply side economics, should have kick started the global economy.  But the bankers blew asset bubbles, the rich got richer and the global economy stalled.  There was no one to buy the "wealth creators" products and services.  The "wealth creators" are driven by demand and would not increase supply until demand rose. They just sat on their huge wads of cash waiting for demand to rise.  But those silly "wealth creators" hadn't realised that employees are also consumers and in holding down their wages, meant demand didn't rise.  So now back to true Keynesian economics where demand is the driver.  You build infrastructure that needs building anyway and create jobs, wages, spending and demand. Oh you silly "wealth creators" you are nothing without demand for your products and services...So the IMFs answer to the worlds economic problems is to get the spendaholic governments of the world to spend even more money, because apparently they haven't spent enough already.
The IMF is calling for more taxation on the people. When a government takes out a loan and spends the money, it will eventually have to be repaid via taxation, so the IMF is basically calling for more taxation. Thanks for that IMF, why don't you **** off.
If you can't see that the IMF is nothing more than an extension of the banking system, and big western governments, then you haven't got your eyes open.