Tanks outside the military museum in Sofia. (aneye4apicture/Flickr)
The military museum in this sprawling capitol city consists of a tiny building and a huge outdoor display of weapons that look as if they had been wheeled in fresh from the battlefields and parked, higgledy piggledy: mountain howitzers that shelled Turks in 1912 rub hubs with Cold War era Russian artillery. MIGs, dusty and weather beaten, crowd a sinister looking Luna-M "Frog" tactical nuclear missile. Two old enemies, a sleek German Mark IV Panzer and its dumpy, but more lethal adversary, a Russian T-34, squat shoulder to shoulder.
Poor Bulgaria. The Russians won't be back, but once again the Germans are headed their way, only this time armed with nothing more than a change of currency and the policies of austerity that go along with it. The devastation those will inflict, however, is likely to be considerable.
Bulgaria is preparing to jettison its own, the lev, and adopt the Euro, the currency of the European Union (EU), although the country has dragged its heels about actually making the switch. With good reason. Currency control is a practical and commonsense way for countries to deal with interest rates, debt, and inflation, as well as to stimulate economic activity. The U.S. Federal Reserve constantly manipulates the dollar to accomplish these goals.
But the Euro is controlled by the European Central Bank based in Frankfort, Germany. Because Germany has the biggest economy in the EU, and is at the center of a "core" of wealthy nations that also use the Euro -- France, Austria, and the Netherlands -- Berlin largely calls the shots. That has translated into a tight-fisted control of the money supply, an aversion to economic stimulation, and years of enforced austerity for countries trying to recover from the 2007 economic crisis sparked by the U.S...
The result, according to Martin Wolf of the Financial Times, is that in addition to Mercedes and BMWs, Germany "exports bankruptcy and unemployment."
Hardest hit by these policies are the "distressed six": Greece, Ireland, Italy, Portugal, Spain and Cyprus, where draconian austerity policies have created soaring unemployment, devastating social services cutbacks, and widespread misery.
Led by German Chancellor Angela Merkel and Conservative British Prime Minister David Cameron -- Britain retains its own currency, but has been an enthusiastic supporter of Germany, and has applied austerity to its own economy -- the strategy has been an unmitigated disaster.
While supporters of this "slash and cut" approach to reviving the European economy claim their policies are a success -- German Finance Minister Wolfgang Schauble says the world should "rejoice" at recent economic figures, and British Chancellor of the Exchequer George Osborne crows that critics of the strategy have been proven wrong -- figures show a very different picture.
The overall EU jobless rate is 12 percent, although that figure is misleading because it varies so much by country, region, and cohort. Unemployment is 12 percent in Italy, 13.8 percent in Ireland, 16.5 percent in Portugal, 26.3 percent in Spain, and 27.9 percent in Greece. And even these figures make the jobless rate look sunnier than it is. Unemployment among Greek youth is 60 percent, and areas of southern Spain post numbers in excess of 70 percent. Indeed, an entire generation of young people across the continent is being cut out of the economic pie.
"It is true that unemployment figures have improved in recent times, but it is equally true that unemployment is at such a high level that any marginal improvement is irrelevant," a Madrid-based economist for Exane BNP Paribas told the Financial Times. "Many people are no longer actively looking for jobs and long term unemployment already affects more than 50 percent of the total unemployed population."
Figures also show that EU growth rates are essentially dead in the water, which means that it will be years before there is any real fall in the jobless rate. EU gross domestic product is 3 percent below pre-crisis levels and those figures go sharply south for the distressed six: down 7.5 percent for Spain, 7.6 percent for Portugal, 8.4 percent for Ireland, 8.8 percent for Italy, and 23.4 percent for Greece.
It is true that growth in Britain is up 2.2 percent, but that figure is over three years and remains 3.3 percent below pre-crisis levels. Moreover, the Office of Budget Responsibility projected back in 2010 that the economy would expand by 8.2 percent by 2013. Economists Oscar Jorda and Alan Taylor of the University of California at Davis estimate that austerity probably knocked about 3 percent off of the British growth rate.
The EU is turning into a house divided. A wealthy core that keep their economies on an even keel and unemployment rates relatively low -- Austria and Germany have the lowest jobless rates in the EU at 5.2 and 5.3 percent, respectively -- while the south and the periphery turn into low wage, high unemployment labor reservoirs. If "core" workers grumble at stagnant wages and reduced benefits, there are always Spaniards, Italians, Greeks and Portuguese willing to take their places.
What the distressed countries really need is a serious stimulus program to jump-start their economies by putting people back to work. But that is not something they are likely to get, especially given the outcome of the recent German elections, where Merkel's Christian Democrats and her allies in the Bavarian Christian Social Union retained power. Merkel told a rally in Berlin, "Our European course will not change."
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