Another euro-pegged government defending an overvalued exchange rate bites
the dust, a reminder that the underlying economic and social disaster across the
Europe’s Arc of Depression is still getting worse. Bulgarian prime minister
Boiko Borisov resigned this morning after days of mass protests against
austerity across the country. “I will not participate in a government under
which police are beating people. Every drop of blood is a shame for us,” he
said. “Our power was handed to us by the people, today we are handing it back to
them.” This follows the defenestration of the free-market finance minister
earlier this week. Bulgaria is of course a complicated country, still grappling
with the legacy of communist rule and a police state. It is a stronghold of
organised crime, offspring of the old security services. It went through near
hyper-inflation in the 1990s and does not want to flirt with that again. The
immediate protests are as much about Mafia control and soaring electricity
prices as about spending cuts. But Bulgaria is also in much the same position
as Greece, Portugal, Spain, and Italy, trapped in the ante-chamber of monetary
union with a misaligned currency, forced to undertake an internal
devaluation....Britain's 15 years of consecutive growth were ignited by the leaving of the ERM straight-jacket that Thatcher signed us up to.
Germany has three choices:
1. It coughs up to pay the debts of the poorer countries.
2. It allows the poorer countries to leave the Euro.
3. It deals with the consequences of a wave of civil unrest and possibly terrorism/revolution across Europe.
They, along with France, made this bed - now its time that they lay in it.
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EC: jobless crisis has grave social consequences
Marco Buti, the EC's director general for Economic and Financial Affairs, warns in today's Winter Forecasts that Europe's unemployment crisis is deepening.
Buti wrote:
Employment is forecast to shrink further for some quarters, and unemployment remains unacceptably high in the EU as whole and even more so in the Member States facing the largest adjustment needs.
This has grave social consequences and will, if unemployment becomes structurally entrenched, also weigh on growth perspectives going forward.
The most recent data shows that the Eurozone unemployment rate is 11.7%.
Publishing its winter forecast on Friday, the European Commission said that the eurozone will not return to growth until 2014, reversing its prediction for an end to recession this year.
Having forecast late last year that the eurozone would grow 0.1pc this year, the EC changed its position, forecasting that the 17-nation bloc would shrink 0.3pc in 2013.
The delayed recovery, which was blamed on a lack of bank lending and record joblessness, means that the eurozone will remain in its second recession since 2009 for a year longer than originally foreseen.
Next year, the commission expects the eurozone economy to grow 1.4pc.
Olli Rehn, commission vice-president for economic and monetary affairs and the euro said: "The ongoing rebalancing of the European economy is continuing to weigh on growth in the short term.
The current situation can be summarised like this: we have disappointing hard data from the end of last year, some more encouraging soft data in the recent past, and growing investor confidence in the future."
"The decisive policy action undertaken recently is paving the way for a return to recovery," he added.
"We must stay the course of reform and avoid any loss of momentum, which could undermine the turnaround in confidence that is underway, delaying the needed upswing in growth and job creation."
The commission predicted that France's economy would grow 0.1pc this year and 1.2pc next year. German is expected to expand by 0.5pc in 2013 while Spain is forecast to shrink by 1.4pc this year.
The European Central Bank's promise last year to do what it takes to defend its common currency has removed the risk of a break-up of the euro zone, and member countries' borrowing costs have come down from unsustainable levels.
But the damage from the global financial crisis and the ensuing eurozone debt crisis has been greater than expected on the real economy, with global demand for eurozone exports one of the few saviours in terms of generating growth.
Joblessness in the euro zone is set to peak at 12.2pc, or more than 19m people, in 2013, the Commission said, and both private and public consumption will not make any contribution to improving output, instead dragging on the economy.
"The improved financial market situation contrasts with the absence of credit growth and the weakness of the near-term outlook for economic activity," said Marco Buti, the commission's director-general for economic and monetary affairs in a preamble to the commission's latest forecasts.
"The labour market... is a serious concern," he added.
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