Consumer demand in Europe. Don’t shop till we drop.
Austerity in action: Spaniards have been tightening their belts for four years in a stretch (graph). Retail sales are down 20%. Greek retail sales are even down 30%. And where does this leave these countries? Does ‘belt tightening’ lead to prosperity? No. It leads to depressed economies, of course, with 23 and 19% unemployment. It’s “the paradox of thrift” in action. And the end is not in sight: more belt tightening is coming.
Now, this could all add up if domestic demand was replaced by foreign demand. Current account deficits of Greece and Spain were clearly unsustainable and (net) exports had to increase. But this won’t happen. Despite increases in wages and employment, German consumer demand is going down, too. And though British and French consumers did behave responsible until now, austerity in France and the UK will end this, too. Greek and Spanish exports have nowhere to go, in the EU.
Germany even threatens to take over Greek government. “History doesn’t repeat itself, but it does rhyme”, according to Mark Twain. And the situation ironically resembles Europe in 1923, when Germany had to pay war reparations, wasn’t allowed to export and the French occupied the Ruhr area. Even the language used ‘rhymes’. To quote the then French premier, Poincaré: “We, on the contrary, believe that if Germany, far from making the slightest effort to carry out the treaty of peace, has always tried to escape her obligations, it is because until now she has not been convinced of her defeat. … We are also certain that Germany, as a nation, resigns herself to keep her pledged word only under the impact of necessity”. Comes in Schäuble, at this moment German finance minister:: “Unless Greece implements the necessary decisions and doesn’t just announce them…there’s no amount of money that can solve the problem” and “”Perhaps we and our partners must look into ways to assist Greece in this difficult task in an even closer manner,” Mr. Schäuble said, alluding to the German oversight proposal.”.