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In this episode of The Econoclasts, Yanis Varoufakis and Wolfgang Munchau debunk the myth of European strategic sovereignty and the lie at the heart of the City of London, exposing how Germany’s failure to innovate within its declining car industry leaves it defenceless against Trump’s revenge tariff assault, while the UK’s ‘finance curse’ has replaced productive industrial investment with a parasitic reliance on property speculation and shareholder payouts.
Trump, Trump, Trump
Listen. It wasn’t Trump. The EU first first decided to push diesel, then decided to ban all oil-cars. Now we are supposed to ban Trump when China cleans up ?
In fairness, all German cars are now so hideous nobody wants them at any price or engine type.
Me ? I would like a Porsche 911 from 1971 before they became whale-blubber thank you
Let’s take the last 20 years for context.
Both the FTSE and the DAX generated compounded annual total returns in the mid-single digits since 2006. Hardly casino-like returns. And most of those returns came in the last two years. By contrast, the S&P 500 provided ~11% compounded in the same period.
The banking system in Western Europe spent most of that 20-year period at death’s door. DeutscheBank is currently at barely a third of its 2006 price. How did, say, JP Morgan do since 2006? It has appreciated by 10x.
So if the sin of the European elites has been the financialization of their economies, they haven’t proven themselves very good at it if the returns in the financial services industry and financial markets are anything to go by.
As for the real estate market, the banking authorities ( i.e. the governments ) kept interest rates near the zero bound ( and at times, negative! ) for a decade or more post-2008. Mortgage interest rates in Denmark, for example, were negative for a number of years in the 2012-2020 period. The banks paid you to borrow their money.
The cost of money is the most important price in buying a home. Make that price trivial and you are naturally going to get speculation in housing. No villains necessary. Homeowners benefited as much from that creation of illusory wealth as the grubby capitalists.
The purpose of all of this free money was to prevent a deflationary collapse. The counterfactual argument is that it worked. You can make that argument if you like, but it elides the issue of what made deflation such a risk. ( Hint: it starts with ‘gov’ and ends with ‘ment’. )
And the city of London? It sold the best of itself to thugs from the steppes and sheikhs from the deserts of Arabia. The rest of itself it just gave away to whomever could manage to find a way to cross the Channel.
Europe’s problem is that it is run by socialists who no longer have the courage of their convictions. You can’t blame them for the loss of courage since the convictions are so flawed. You can blame them for not getting out of the way, though.
YV, it seems, can only see things through Marxist-tinted glasses. That’s the trouble with the so-called social sciences like economics: doesn’t matter how smart you are, it’s of no use if you can’t get past your biases. As far as I can tell, the economics profession hasn’t had a fresh idea since the Scottish Enlightenment.
As to YV’s main point, there was no surplus value to recycle back into the U.K. economy in recent decades because there was no productivity growth. This is a problem for all Western countries, except, of course, for that rabidly capitalist country, the U.S.
The likes of Varoufakis never explain why it is impossible to have both a productive economy and a strong financial sector. As you point out, this is the case in the US. To achieve productivity growth an economy needs savings to be directed towards the sectors providing that productivity growth. The alternative is to direct savings towards the government that then wastes the money.
It has only taken 11 years for Varoufakis to understand the nature of the EU. An intelligent man would have realised it when his country was turned into a vassal state of the Troika in 2015. Von der Leyen did not have the mandate to do the trade deal with Trump because she is not a democratically elected leader of the EU. Nor was it a coincidence that she chose to sacrifice the rest of the EU in order to protect the German car industry. The EU is run by and for Germany.
If German rule of the EU erodes, the EU may become more representative of all the member states. More likely in my opinion is that it splits into a northern EU and a southern EU.