Gloomy prospects for the European economy

Written by Marcos Margarido
Thursday, 27 November 2014 01:11

It looks like that after the recessions in the southern countries the crisis is deepening from the periphery to the core countries, that is to Italy, France, Germany and Britain.
But only a few months ago it was announced that in Europe a sustainable recovery had began which was also influenced by the American economic recovery.
However, for the great majority of workers things have not changed; an improvement in our living standards was not part of the recovery. It was not a recovery in society in general, but in profits, which came at the expense of our wages, pensions, jobs, benefits and social rights.
However, recently the media started to talk about their crisis again: “The European economy has stalled”, said Mario Draghi, President of the European Central Bank (ECB).
The latest IMF World Economic Outlook forecasts a “lower than expected growth”, because there was a “surprising decline in activity during the first quarter of 2014” in the U.S. and a “stagnant Euro area growth, with a contraction in output in Italy, no growth in France, and a unexpected weakness in Germany in the second quarter”, along with decreasing growth in Japan, Latin America, Russia and China…
The Euro area
The IMF increased the probability of recession for the Euro area, from 22.5 per cent to 37.5 per cent within one year, with a 30 per cent chance of deflation. Their main concern is a recession in Germany: “Among the core economies, growth projections for the German economy have been revised downward… Growth in France stalled in the first half of 2014.”
A fall of 0.4 per cent of German production means a fall of 1.8 per cent of the Euro area’s industrial production. A recession in Germany would drag down the whole EU, including Britain, because the EU economy is integrated into the German export machine.
Germany, after a growth in January and February saw its production decline for the rest of the year. In June it was 0.4 per cent. That is why the Euro area is in trouble. Eurostat states that the industrial production in the EU18 (the 18 countries of the EU) was 0.3 per cent down from May to June 2014, and 0.1 per cent down in the EU28.
The result in most of the European countries is the increase of idle capacity in industrial production. In the automotive industry, for instance, 58 factories operated below 75 per cent capacity in 2013. So, jobs are not being created and prices fall due to weak demand and falling production. Bulgaria, Greece, Portugal, Spain and Slovakia are already experiencing deflation, which can be worse than inflation, because it is an indication of the paralysis of the productive activity.
Britain appears to be in a different – and better – situation than the rest of the major European countries. Its GDP increased 3.2 per cent year-on-year in the third quarter and, while the EU still struggles to reach the pre-crisis growth levels, Britain has actually surpassed it.
There are some political and economic reasons for this. First of all, Britain’s currency is not the Euro, which means the British government has a higher degree of autonomy to manage the economic policy. Secondly, many of the structural reforms ongoing in Spain, Portugal, etc. have been laid down by Thatcher. And, most important, British social-democracy (Labour and TUC) proved to be more effective in controlling the working class that allowed the government to implement austerity without fierce resistance.
Cameron says the government’s “plan is working”. However, according to the IMF, behind the scenes the “legacies of the pre-crisis boom and the subsequent crisis, including high private and public debt, still cast a shadow on the recovery.”
It is possible that industrial production can follow the same pattern as the Euro area. The construction sector is on a downward slope. In August 2014, output has fallen by 3.9 per cent compared with July 2014, and 0.3 per cent if compared with August 2013. It is the first time since May 2013 that the year-on-year estimate has decreased.
The production sector is, it seems, going towards stagnation. After a year increase of 2.5 per cent, inAugust total production flattened and manufacturing increased only 0.1 per cent compared with July.
The continuous fall of inflation, although good news for the consumers, could drive Britain to deflation.
Fight the coming attacks
Facing the possibility of a new recession and the impossibility of deepening fiscal measures the IMF appeals for more attacks on the working class:
“In the Euro area, more growth-enhancing structural reforms are necessary to tackle high unemployment, increase competitiveness in stressed economies, and facilitate rebalancing.”
It is more of the same: pension and labour reforms, increasing  labour casualisation, lowering wages and working conditions, issues that would affect all workers but hit women, Blacks and immigrants the most. New structural reforms have been announced in France and Italy. The working class throughout Europe, but now with the addition of the huge battalions of German and French workers, must be prepared for a new round of battles in this social war.
To win, it is necessary to bring all struggles together against national governments into a single European one, which includes the fight for jobs, pay rises, against pension reforms and casualization. And these struggles must be united against the IMF and the EU.

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