Monday, September 10, 2012

Comical Welt: All's well in the austerity front. No, really!

This has to be read to be believed "Die Welt: Happy Days Ahead? Euro Zone Austerity Measures Starting To Work" [Original in German]:

If the numbers are right, the European crisis countries are apparently healing faster than the markets have realized -- or want to realize.

An astonishingly positive total picture emerges from the various statistics. The economies of the euro zone's periphery nations are more competitive than they were just a few months ago; their industries are selling more abroad, and trade deficits are narrowing.

"Blood, sweat and tears -- everything people in these economies have been through is paying off," says Bert Colijn, a jobs market expert with Conference Board, a private economic research institute." The competitivity of the crisis countries is improving, and these first signs of improvement are encouraging. The periphery countries are moving in the right direction."

What is this right direction that brings PIIGS singing out in joy at the good effects of austerity? Well people there are working for pennies now! And doesn't that make everybody happy?

One particularly salutary development is cheaper labor costs. In Ireland, Spain and even Greece, unit labor costs have fallen significantly over the past few years. Conference Board economist Colijn and his colleague Bart van Ark researched that development, and report that of all the euro zone countries, the one that has increased its competitivity most is Ireland. Unit labor costs in Irish industry have fallen by 41.5 percent since 2008, which means that labor costs in Ireland are lower than they are in Poland and other middle and eastern European countries.

So we're there? Ordoliberal austerity's Land of Canaan has been reached? Herbert Hoover has been vindicated? Well not quite yet... it remains for the Archons of Investment to take heed of the redemption of the sinners, and in, a not quite adequately determined time-frame, we will have some sort of Growth and Jobs:

It will take time before lower unit labor costs produce full effects, but already they have made goods from those countries cheaper. In the long run, it will make them more interesting to investors.

At the moment, however, uncertainty about the future of the monetary union is keeping companies from investing. Only when they start investing again can the results of lowered costs bear its real fruit in creating growth and jobs.

Yes. At last! We're talking low paying jobs of course. And no welfare state - goes without saying. Possibly a large spike at infant mortality. And those pensions? Well the good thing about a reduced life expectancy is that fewer will feel their absence...

But let's try to confirm the "competitivity" improvement under austerity for most of the PIIGS countries from 2008 to 2012. We'll be using The Global Competitiveness Report, a composite index that has more to do with an investor's take on how they would like a country to be, rather than anything else. As investor sentiment seems to be the driving argument in the quoted article it seems useful to check the related rankings... So:

  • In the Global Competitiveness Index rankings for 2007-2008, Portugal was ranked 43d, yet this year it is ranked 49th...

  • Ireland was ranked 22d in 2007-2008, and 27th this year (despite or probably because of the >40% drop in unit labor values there I wonder?)

  • Italy was the only one of the PIIGS countries to improve from 49th (2007) to 42d, possibly because it was the country least inflicted with austerity of the five

  • Greece has dived from 67th place to 96th, as its economy was destroyed by unprecedented turbo austerity

  • Spain dropped from 29th to 36th.

Is that an improvement or what?

The whole propagandistic tenor of the piece (fox news on weed) is breathtaking since it is running counter to pretty much every published assessment of the situation. For example Bloomberg recently wrote about Spain that:

"We fear that things are likely to get worse before they get better," said Martin van Vliet, an economist at ING Bank in Amsterdam, who expects Spain will seek additional financial aid as early as next month. "With much more fiscal austerity in the pipeline and unemployment at astronomic highs, the risks are clearly tilted toward a more protracted recession."

Separate data today from the ECB showed that private-sector deposits at Spanish banks fell by a record in July, dropping 74.2 billion euros ($93 billion), or 4.7 percent, to 1.51 trillion euros. That's the biggest decline since at least 1997, when the ECB's data series started.

As Migeru pointed out in an f/b conversation, this is running counter to Die Welt's other coverage ("Spain on the brink of bankruptcy" on Sept 7, just five days after the posted article).

Could it be some sort of sarcasm that is being missed in translation? Is it part of a propaganda effort to create a more positive atmosphere toward the south in German public opinion? What? I don't know but is sure reads funny in a dark and obscene way... Cross-posted in the European Tribune

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