Monday, 8 June 2009


TELEGRAPH Blog 8.6.09
Europe swings Right as depression deepens
Posted By: Ambrose Evans-Pritchard

The establisment Left had been crushed across most of Europe, just as  
it was in the early 1930s.

We have seen the ultimate crisis of capitalism -- what Marxist-
historian Eric Hobsbawm calls the "dramatic equivalent of the 
collapse of the Soviet Union" -- yet socialists have completely 
failed to reap any gain from the seeming vindication of their views.

It is not clear why a chunk of the blue-collar working base has swung 
almost overnight from Left to Right, but clearly we are seeing the 
delayed detonation of two political time-bombs: rising unemployment 
and the growth of immigrant enclaves that resist assimilation.

Note that Right-wing incumbents in France (Sarkozy) and Italy 
(Berlusconi), survived the European elections unscathed.

Left-wing incumbents in Germany, Austria, the Netherlands, Spain, 
Portugal, Hungary, Poland, Denmark, and of course Britain were either 
slaughtered, or badly mauled.

The Dutch Labour party that has dominated national politics for the 
last half century fell behind the anti-immigrant movement of Geert 
Wilders (banned from entering Britain). It serves them right for the 
staggeringly stupid decision to force through the European 
Constitution (renamed Lisbon) after it had already been rejected by 
their own voters by a fat margin in the 2005 referendum.

The Portuguese Socialists face Siberian exile after seeing a 18pc 
drop in their vote. The slow drip-drip of debt-deflation for a boom-
bust Club Med state, trapped in the eurozone with an overvalued 
exchange rate (viz core Europe, and the world), has suddenly turned 
into a torrent. The country is already in deflation (-0.6pc in 
April). It has been suffering its own version of Japanese perma-slump 
for half a decade.

Portugal's opposition is calling for an immediate vote of censure, 
while the Government clings to constitutional fig-leaves to hide its 
naked legitimacy. "O Governo está na sua plenitude de funções," said 
the chief spokesman. You can guess what that means. Not long for this 
world, surely.

In Germany and Austria, the Social Democrats suffered their worst 
defeats since World War Two. I don't say that with pleasure. A 
vibrant labour-SPD movement is vital for German political stability. 
It was the peeling away of Socialist support during the Bruning 
deflation of the Depression years -- so like today's Weber-Trichet 
deflation -- that led to the catastrophic election of July 1932, when 
the Nazis and Communists took half the Reichstag seats.

This will not happen again, thankfully, because there is no Bolshevik 
threat luring business into a Faustian pact with Fascists. But the 
picture is not benign either. Unemployment in Germany may reach 5m by 
the end of 2010, according to the five 'wise men' , even if recovery 
comes on schedule.

But as readers know, I still fear that this depression is quietly 
deepening. The savings rate is rocketing in the deficit states of the 
US, UK, Spain, et al, as the "sinners" belatedly tighten their belts, 
but their fall in consumption is not being matched by an offsetting 
rise among the surplus "saints" states, China, Japan, Germany-
Netherlands, which all points to an implosion in world demand. Yes, 
the West is printing money.

But that is a harder to trick to pull off than Friedman and Bernanke 
ever realized. And core Europe is not really printing anyway beyond 
its chump-change dallying in the covered bond market.

In Ireland -- now crucifixion laboratory for the EMU, and downgraded 
again today to AA by S&P -- the ruling Fianna Fail lost every single 
[seat?]  in the European Parliament. It is the party's worst defeat 
since the creation of the Republic. Premier Brian Cowen cannot be 
long for this world either.

As for Gordon Brown, I can only say that having derided UKIP as 
fringe losers, his attempt to cling top office after UKIP trounced 
him is quite astonishing.

I find it odd that the press continue to talk about a leadership 
change as if Labour could possible keep going for another year, with 
yet another unelected prime minister, and with its authority reduced 
to tatters. This Parliament ought to be dissolved immediately. An 
election ought to be called this week.

It is shocking that Westminster's inbred family still cannot see the 
writing on the wall. If this sorry saga goes on much longer, we may 
have to conjure up some sort of medieval impeachment process. (My 
colleague Phil Johnston says no such mechanism exists. Pity)

So, we may lose three or four governments in Europe in coming days or 
weeks -- or even worse, they may survive. The drama is unfolding as I 
feared. Half way through the depression, we are facing the exactly 
the sort of political disintegration that occurs in times of profound 
economic rupture.

Remember, the dangerous phase in the Great Depression was Stage II, 
after the collapse of the collapse of Austria's Credit-Anstalt in 
mid-1931 set off a disastrous chain-reaction that Autumn (until then, 
most people thought they faced no more than a bad recession, like 
today).

Don't count on the political fabric of Europe holding together if our 
green shoots shrivel and die in the credit drought of the long hot 
rainless summer that lies ahead.