Many of my European friends ask me about Martin Schulz and the success of social-democrats at the polls. Since they are progressive, they hope for reforms in the eurozone to curb mass unemployment, stellar youth unemployment and social problems that exist in many crisis countries. I always had my doubts if Martin Schulz was the right person to end austerity and bring the Eurozone back on its path to prosperity and full-employment. Now these doubts have been confirmed by the FT:
Martin Schulz signalled he would not soften Germany’s pro-austerity stance if elected chancellor this year, a message that will disappoint those in the EU hoping the Social Democrat leader might usher in a change in Berlin’s policy on the eurozone. In his first encounter with the foreign press since being elected SPD leader last month, Mr Schulz projected a message of continuity, suggesting there would be no big shift in Germany’s insistence on debt reduction and structural reform if he replaces Angela Merkel as chancellor. He said Germany had a “great interest” in ensuring all EU member states achieved stable growth, “but to get there, certain reforms are needed in these countries”.
This means that for the Eurozone as a whole, the deflationary bias – all crises lead to cuts in wages and spending, which lower the rate of inflation – will continue. This will have an effect on the distribution of income and on employment as well as the financial crisis, since lower nominal incomes and more unemployment mean that it will be harder to repay debt.
I expect the Schulz effect to fizzle out before September. German social-democrats are on the same trajectory as their European comrades. They become a splinter party, trying to be progressive with a neoliberal mind set. The Netherlands, France, Greece, and (probably) soon Spain, depending on which leadership the party choses, show that the progressive left will reorganize along new lines.