Why Rehn is wrong

The EU Commission is pessimistic: The recession will continue in 2013, unemployment will reach new highs, deficit targets are to be missed. Apart from the fact that so far all the predictions proved wrong: the criteria for assessing the situation are questionable, key indicators are missing.

Today the Last Judgment was given in Brussels. Commissioner Rehn presented his economic forecast for 2013. As usual, half of Europe was reprimanded. Rehn himself does not have to fear any sanctions, although his predictions are frequently wrong.

Sanctions are not issue for Germany, neither. Although Finance Minister Schäuble is still complinig depts, and the German current account surplus exceeds all EU borders, Berlin has nothing to fear. Anyway, Brussels will look away.

Arbitrariness in the ceilings

The reason for this is arbitrariness in the criteria. A current account deficit of three percent is a complaint worth. An excess of three percent is not. The limit was put (on German request) at six percent, and even beyond that  nothing happens.

Equally arbitrary is the limit for debt. 60 percent of GDP are officially permitted, Germany is at more than 80 percent – but in fact, things are getting serios only at about 100 percent, as the euro crisis has shown.

The budget deficit, however, has a limit of three percent, which dones not make no sense for the markets. Only when Greece broke the ten-percent level, the trouble started. Spain and Ireland were under three, but they slid into crisis.

The worst thing is that the main economic indicators are still missing in Rehns calculations. There is neither a target for growth nor for unemployment. Not to mention poverty, social justice, etc.

While the U.S. Federal Reserve is targetting an unemployment rate of less than 6.5 percent (otherwise it will keep the interest rate at zero), Rehn, Schäuble & Co. do not even care if rates are above 20 percent, as in Greece or Spain.

Well, we need not do anything like the U.S., their budget is out of control, as everybody knows. But to concentrate only on saving, and thereby treat growth and unemployment as a variable for adjustment would be fatal.

Prohibiting discussion

Without growth, deficits will never ever be adressed. The forced austerity choked off the economy so strong that even the savings targets are missed now.

Greece, Spain and Portugal provide illustrative examples for this dilemma. At the IMF, a rethinking has begun. In Washington, a frank discussion about failed austerity is going on.

Rehn, however, has imposed a ban on this discussion. The debate over the so-called fiscal multipliers was “not helpful” and could “undermine confidence,” he wrote in a letter to the Ministers of Finance.

For the U.S. Nobel laureate P. Krugman, this is a sign that Rehn & Co. are on the defensive. In his blog, Krugman even speaks of “gratifying signs of desperation.” Seems he does not know Rehns and Schäubles real nature…