Is austerity hitting the buffers? Don't tell the Germans

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German Chancellor Angela Merkel. Photo: Reuters

Was anyone surprised at the running battles on the streets of Madrid last night in the wake of their apocalyptic unemployment figures?

6.2 million out of work (the equivalent of more than 8 million in the UK), up a quarter of a million in just 3 months.

And the rate of job losses is actually accelerating. Perhaps the only surprise is that there hasn't been more unrest.

EU President Manuel Barroso said this week that austerity in the Eurozone was now testing the limits of democratic acceptability, remarks taken to mean that the thumbscrews were about to be taken off the economies of Southern Europe and some economic sanity restored.

Except that no one asked the Germans. Angela Merkel, in some of her less helpful contributions, declared that she doesn't like to call it austerity, but rather ‘balancing the books’, and could see no reason for not to continue along this self-evidently sensible road.

EU President Manuel Barroso. Credit: PA

Then, for good measure, she made a highly unusual intervention over interest rates, suggesting to the ECB that, however much southern Europe may be begging for a rate cut, such a move would not be helpful to the German economy.

There has long been a suspicion on the Eurozone periphery that policy is being run for the benefit of Germany rather than the zone as a whole. Suspicion may now be hardening into certainty.

The pain has spread to France which also revealed the worst unemployment figures since records began, up another 100,000 to 3.2 million.

The pressure on President Hollande - elected less than a year ago on a promise to cut unemployment - is becoming unbearable, with talk now of a major Cabinet reshuffle to try and turn things around.

But reshuffling the Government suggests that ministers have any real control.

The example of the Arcelor-Mittal steel plant at Florange in North-Eastern France suggests that they don’t.

French President Francois Hollande. Credit: PA

President Hollande campaigned on a promise to keep the plant open, a promise reaffirmed at the gates of the plant just four months ago.

His industry minister even threatened to nationalise it if the owners refused to co-operate. This week the plant closed anyway, adding another 1,500 to the unemployment rolls.

The new Italian Prime Minister, Enrico Letta, talks boldly of an ‘end to austerity’, but every Italian knows that nothing is going to change.

His grip on power can best be described as ‘shaky’, and lurking on the sidelines is the perma-tanned figure of Silvio Berlusconi who can withdraw support and bring down the new Government at any time of his choosing.

And yet he is far enough from office to claim that a collapsing economy is nothing to do with him.

There will almost certainly be new elections within a year, and don’t bet against a return to high office for ‘Il Cavaliero’.

Across Southern Europe policies designed to reduce deficits and bring down total debts are actually achieving the opposite.

Silvio Berlusconi could make another astonishing comeback. Credit: Reuters

There are indications that the European Commission will grant countries more time to get their deficits down to the agreed maximum of 3% of GDP, but this is only bowing to the inevitable. France, Ireland, Portugal are still a long way from 3%.

In Greece and Spain they are moving in the wrong direction (both up to 10% in 2012), and the Spanish Government is announcing a slight relaxation of austerity today, regardless of what Brussels might say.

Germany could help by loosening the purse-strings, spending a bit more, creating a bit of demand and buying more from the periphery.

It, too, is heading the opposite way, tightening its budget in order to reduce its own deficit to zero a year ahead of schedule. It is election year in Germany, and thrift is popular.

Angela Merkel now faces a credible threat from the new eurosceptic party ‘Alternative for Germany’, and so can’t afford to be seen to be going ‘soft‘ on those spendthrift ‘southerners.

The only solace for everyone else is that in a few months time she will probably have been re-elected and may - just may - feel that at the beginning of a new term she can risk a change of course.

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