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 Richmans' Trade and Taxes Blog

European Right May End the Southern European Depression
Howard Richman, 10/17/2013

In August 2012, we made the case (Deficit Spending Doesn't Work; Balancing Trade Does) that the trade deficit countries of the Eurozone were locked in the trade-deficit caused depressions predicted by John Maynard Keynes about 80 years ago in his The General Theory of Employment, Interest and Money. He argued:

A favorable [trade] balance, provided it is not too large, will prove extremely stimulating; whilst an unfavorable balance may soon produce a state of persistent depression. (p. 338)

The following graph, which we published back then, illustrated the relationship between trade balances (current account balances) and unemployment rates. It showed that those countries with trade deficits have high unemployment rates and those with trade surpluses have low unemployment rates:

Now, a little over a year later, the same five countries still have high trade deficits, and their unemployment rates have all gone up, as shown in the table below:

In contrast, the trade surplus countries of the Eurozone are doing quite well -- Germany, especially. Its unemployment rate is down to 5.2% today from 5.7% in 2012. If the Eurozone were truly integrated, as the United States is integrated, enough people would migrate from the depressed South to the prosperous North to even things out. But the current European migrations are not reducing southern European unemployment rates.

It seems obvious that these five countries should leave the Eurozone in order to revive their economies. Once out, their currencies and the international value of their wages would fall to trade-balancing levels and they would start getting investment in their industries. They would prosper and their unemployment rates would shrink.

But only those on the right of the political spectrum are calling for a breakup of the Eurozone, And they are going even further. They are calling for the breakup of the European Union. This from The Telegraph:

The leader of France’s far-Right party has vowed that the European Union would “collapse like the Soviet Union” as she conspired to form what would be the most radical faction yet seen in the European parliament.

Marine Le Pen, buoyed by a weekend by-election triumph in southern France, criticised the EU as a “global anomaly” and pledged to return the bloc to a “cooperation of sovereign states”.

She said Europe’s population had “no control” over their economy or currency, nor over the movement of people in their territory.

“I believe that the EU is like the Soviet Union now: it is not improvable,” she said. “The EU will collapse like the Soviet Union collapsed.”

Ms Le Pen, 45, will next month travel to Holland to chart a joint campaign with Geert Wilders, whose anti-Islamic Freedom Party (PVV) currently tops national opinion polls for May’s European elections.

They are opposed by those who are internationalist in their outlook:

Guy Verhofstadt, a former Belgian PM, urged mainstream parties across Europe to stand firm against the forces of extremism that fuelled the Second World War.

“If we allow these forces to gain a foothold once again on our continent we will have wasted a century of building closer ties and condemned history to repeat itself,” he said.

President François Hollande of France warned this week that the prospect of a significant anti-EU grouping could lead to “regression and paralysis” in Europe, adding that it could threaten the continent’s ability to recover from the after-effects of the crisis in the Eurozone.

Those on the European right have a solution which would restore prosperity to their countries. Meanwhile, the elites of these countries have become so blinded by internationalism that they can offer nothing better than perpetual depression.