Groundhog day for the eurozone?

Estelle Cooch looks at whether the economic optimism pushed by politicians lives up to the headlines. First published in the autumn 2014 edition of the rs21 magazine.


On the 14th August amidst much cheering from the media and economists the eurozone emerged from its longest ever recession. In other words the gross domestic product (GDP) of the 17-country area grew by 0.3 percent for the first time in 18 months. The “Great Recession”, that began in 2008, they said, was over.

In the UK, the Tories jumped on the celebratory bandwagon, bizarrely congratulating each other on Britain’s “recovery”. But the oh so praised 0.2 percent growth that Britain has seen in over six years is still the worst performance since the Great Depression itself. Much of the Tories’ triumphalism has also been based on the claim that however bad things are in Britain, they’re much worse in France.

But what really is the state of the eurozone? Have the green shoots that George Osborne trumpeted a year ago grown into tall trunks or are we still stuck in the mud.

Stuck in the mud

There have been a series of economically optimistic headlines about the British economy in the past year. In August the Office for National Statistics announced that the unemployment rate had fallen to 6.4 percent – the lowest since late 2008, with the number of people unemployed falling by 132,000 to 2.08 million. At the same time with the economy technically returning to its pre-recession peak the economy should be producing more than ever before.

But this hype around unemployment and GDP masks a slightly less optimistic reality.

It is true that GDP has increased this year – albeit by a measly 0.2 percent in the last quarter. But there has also been a growth in population since 2008 of more than 2.5 million. This means GDP per capita (the amount per head if GDP was divided between the population) has actually decreased. An investigation by The Spectator found that were the UK to leave the EU and join the US as a state it would be the poorest when it came to GDP per capita, below even Missouri (the current poorest state) that is marred by the Ferguson riots.

But there are other reasons that socialists should be sceptical about the Tory claims of recovery.
Often where unemployment has decreased it has been the result of part time or low wage creation and a surge in self-employed work. Britain was recently dubbed “the self-employed capital” of western Europe with one third of the increase in jobs since 2008 being self-employed (15 percent of the labour force). Meanwhile one in five jobs in London are now low paid (below the London Living Wage of £8.80 an hour). But what does this mean for recovery?

The self-employed surge

The Marxist economist Michael Roberts has long argued in his blog that if low paid jobs in the service sector plugged the gap of jobs in industry any recovery would remain weak.

The surge in self-employed workers has had little positive effect on the economy. Many set up their own businesses because they couldn’t get a job, while rarely turning over enough to be above the VAT threshold anyway.

And despite the long hours worked, self-employed workers do not produce a lot per person. The increase in overall employment that has headlined newspapers has not meant a matching rise in output and so UK productivity growth has remained low. The Bank of England released a report in June of this year saying they remain “puzzled” as to why this is.

One of the most shocking impacts of austerity has been in those actually in work. Since the coalition came to power in 2009 in-work poverty and the number of people claiming housing benefit, has rocketed by 59 percent. For the first time since records began those living in poverty are more likely to have a job than not.

A strike by the rich

And so despite George Osborne’s claims of green shoots and the recent news that UK growth had been projected upwards by the British Chamber of Commerce the recovery is based on shaky ground. Employers and businesses refuse to invest their way out of the crisis (an investment strike), so occasional improvements within the economy are based on household spending, not new investment.

This is hugely important. This means that those at the bottom with falling wages and increased cost of living are forced to spend their savings or take out payday loans to survive, while those at the top continue to hoard their profits.

This is the great untold story of the recession. In 1970 the level of investment in the economy (in things like factories, machinery and buildings – what Marx calls fixed capital) was more than two-thirds of the gross profits of firms. By 2000 this investment ratio (as a proportion of profits) had fallen to little over half declining as we approached 2007 when the crisis hit. By 2012, however, this investment ratio had plummeted to 43 percent.

Mountains of private profits have built up in the past few years and not just in the UK, but across the whole of the eurozone, where one report by the Financial Times showed cash piles were growing at a rate of £75 billion a year.

So while those at the bottom are forced to scrape together every penny to survive, those at the top will simply wait until the good times come again.

What about Europe?

When it comes to Europe, the announcement on the 14 August that the eurozone had edged its way out of recession could not have been more premature. Within two weeks the leading French and German papers were running with the story that the eurozone could now tip into outright deflation.

Mario Draghi, head of the European Central Bank and so called “super Mario” was thrust into urgent meetings to try to avert the crisis. This came at the same time as the news that manufacturing in the EU had fallen to a 13-month low.

Even Germany, one of the few EU countries to maintain growth above pre-crisis levels, has found itself in troubled waters as a result of the Ukraine crisis. As a largely export based economy it is puzzling why German business has suffered such a knock. Russia accounts for just three percent of German exports, while Kiev is a mere one percent. But paying closer attention EU sanctions in defence and finance have led to Russian countermoves – affecting predominantly German farmers.

Germany now teeters on recession, Italy has slid straight back in to it and France flounders in stagnation and political turmoil. What began as a sovereign debt and banking crisis has decayed into a crisis of growth as capitalists sit on cash and refuse to invest; all of this compounding the longer term crisis of profitability.

Ultimately if we are to break through economic crisis we have to break through the political stagnation that accompanies it; the rise of Podemos in Spain and the potential of left realignment in Scotland are certainly not to be underestimated.

If we can manage that we can break the cycle of déjà vu that has characterised the past few years and those are the kinds of green shoots actually worth fighting for.


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