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ORIGINAL FRENCH ARTICLE: Coup de tabac annoncé sur la zone euro

by Bruno Odent

Turbulent times announced for the Eurozone

Translated Thursday 17 April 2008, by Susannah Readett-Bayley

Economy. Bad news from the IMF was compounded yesterday
by a new record for the euro — It stands at nearly 1.6 dollars.

Yet more bad news for countries in the Eurozone. The IMF has revised its forecast growth for Europe significantly downwards, confirming that the impact of the financial crash on the real economy could be much more serious than initially thought. The European currency reached a new record high yesterday coming close to 1.6 to the dollar – inevitably, this has an adverse effect on Europe. We know that a super-strong euro damages competitiveness in production in Europe and increasingly reduces exports.

A terrible chain of events is in progress: The path of the euro in exchange rate markets is affected by forecasts of recession in the USA weighing on the dollar. It’s also pushed up by the ECB’s (European Central Bank) very restrictive monetary policy. Once again yesterday, it announced its decision to maintain its key interest rates unchanged at 4% (2 points over that of the Federal Reserve)

Jean-Claude Trichet, head of the ECB justified this decision once more by the “continued presence of upward pressure on inflation”. This is a real phenomenon. Energy, raw material and basic food product prices have rocketed, contributing to an overall price rise of more than 3% in the euro zone. This is the source of a huge dilemma for the European Central Bank, confronted simultaneously with a high risk of inflation and a general stagnation of activity.

However, The ECB is adopting the worst possible attitude faced with this so-called stagnation. Instead of looking to avoid the approaching global crisis by stimulating productive investment and employment, it is relying on monetarist dogmas found in European treaties.
Happy to rush to help speculators by flooding the markets with funds at the slightest hint of a financial crisis, the ECB is to keep salaries under close scrutiny under the pretext of a possible “second round effect”. What this means when translated from the Central Bank’s technocratic lingua-franca is that salary rises would combine with actual price rises to provoke an ‘inflationary spiral’.

Jean-Claude Trichet, sadly supported by the entirety of the Euroblock’s finance ministers who met in Ljubjana last week made clear his unmoveable position on the subject – at the very same time that European trade-unionists took to the streets of the EU’s current leader Slovenia’s capital, to demand real salary rises after years of pitiful salaries, and to condemn falling purchasing power and worsening vulnerability.

But, if we take the time to look a little closer, it’s exactly this inflexible approach to salaries which is the problem. It is the principal cause of the stagnation in Europe. Insufficient salaries and dramatic cuts in public spending under the pretence of reforms are literally suffocating consumer spending – one of the biggest growth drivers.

So, European trade unionists are right when they claim that real salary rises would have the stimulating effect needed to break the spiral into recession. The brave step must be taken today for a revolutionary revision of European monetary policy. We must give ourselves the means to escape from the catastrophic diktat of financial markets (which have done nothing but push the world to the edge of an abyss) and to stimulate finance more towards investment in employment, research and useful productive spending.

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