Friday, 7 March 2025 — Geopolitics And Climate Change
For many decades Germany has trodden the path of internal deflation relative to other EU nations, racking up huge trade surpluses that heavily contributed to the European Debt Crisis of the early 2010s. Greatly aided by the inability of the other Euro nations to devalue given the single currency, and the neoliberal policies that suppressed German real wages. The country was also central to the EU decision to limit national government deficits to 3% of GDP and imposed upon itself a “debt brake” (the balanced budget amendment) that restricts annual structural government deficits to 0.35% of GDP. Germany’s current account surplus averaged 3.3% of GDP from 1980 to 2023, with a high of 8.9% in 2016.
In 2023 the current account surplus was 5.8% of GDP and the trade surplus widened in 2024 as imports dropped more than exports. All while German GDP growth averaged only 1.23% from 1992 to 2024; with Germany in recession in 2023 and 2024 and real GDP flat lining since the last quarter of 2017. Germany’s real GDP has only grown by 14% since the first quarter of 2008, and 27% since 2000. Better than an Italy that has stagnated during that period, but far behind the rising east – including a Russia that has a larger economy (using PPP) than Germany.
Such austerity was always a class project, to produce fake reasons why there would never be enough money for more social spending, or even spending on the nation’s infrastructure. After 2008 it was also a way of making the general population pay for the massive bailout of the banks, rather than making the rich that had profited massively off pre-2008 financial bubble pay for it. Colossal amounts of private debts were socialized onto the state or the books of the European Central Bank; private creditors were directly bailed out on a massive scale. It was the way to remove the possibility of big tax raises on the rich and corporations, and tighter regulation of the banking system.
It was always a lie, based upon simplistic views of governments and national economies as equivalent to a household (the “fallacy of composition”) when in fact in times of low capacity utilization and the need for economic upgrading such spending can drive economic growth that reduces government debt as a share of GDP and increases tax revenues. The austerity of many of the European nations over the past decades has instead lead to much lower growth, lower tax revenues and rotting infrastructure that limits future growth. While not reducing debt as a percentage of GDP. In Germany the austerity even produced a railway system which is less reliable than the British one.
And now the German oligarchy and their courtier class have decided that its time to throw away the debt brake, well actually to define it as inapplicable to chunks of spending. For urgent spending to upgrade industry, to build more social housing to combat rent profiteering, for urgent research on climate geo-engineering? No, for defence spending and “infrastructure”. When it comes to defence the courtiers will do “whatever it takes” to defend themselves against the mythical threat of a Russian invasion of Europe.
They may even subvert democracy by passing the new spending law in the small window when the Bundestag representation still reflects the pre-election composition. A two-third majority is required to pass the legislation and that may be impossible with the new Bundestag representation that will reflect the very recent stated will of the German electorate. Once again, democracy is only important when it aligns with the requirements of the oligarchy; as we have seen recently in Romania.
Incredibly, there will be no debt brake limit on defence spending at all! This is laughably called “investing in defence” when it is in fact the spending of huge amounts of money on things that are simply not required as Germany is not at risk of being at war with any of its neighbours nor with Russia – unless it is Germany that attacks Russia (again). A chunk of this spending will go on useless expensive crap from the US MIC (a form of tribute to the imperial core) and will also massively inflate German MIC profits given the current state of the German defence industry. There will also be Euro 500 billion to fund “infrastructure” spending and some relaxation of local government deficit rules to allow them to spend more. This is classic military Keynesianism, with infrastructure upgrades required to support rapid mobilization and the concentration of forces.
With a government debt to GDP ratio of 62% and a large current account surplus, Germany is more than capable of funding these spending increases. But it has been in that position for decades, while only now that the Ukraine proxy war project is at risk and the US demands more tribute (purchases of overpriced US MIC products) does the German government make this move. As we are seeing with DOGE in the US, military spending will never be opened up to the detailed scrutiny and spending limits that spending for the benefit of the general population is. The Imperial Project must always have its defence war spending. As the spending spigots are opened across Europe to fund a “defence” against a mythical threat, the years of austerity based on a lie will be quickly forgotten by the political, media and think tank courtiers. And the German, and other stock markets, will rise; especially the defence stocks such as Rheinmetall which has more than doubled in the past months.
At the same time the real oligarch position is given voice by Janan Ganesh, a Nigerian immigrant to the UK who has excelled at becoming a dutiful courtier to the oligarchs, in this article in the Financial Times. He argues that the spending on the many must be cut to fund war spending to defend against the mythical Russian threat. The possibility of reversing some of the tax cuts for the rich are fobbed off using the usual right-wing bullshit talking points and misrepresentations.
The reason Merkel wanted some welfare trimmings was to preserve Europe’s “way of life”. The mission now is to defend Europe’s lives. How, if not through a smaller welfare state, is a better-armed continent to be funded?
… The other option is to raise taxes. At the margins, this could happen. But big rises? In an already undynamic continent? It would show that Europe has learnt nothing from decades of economic torpor, or from endless competitiveness reports, or from America. It isn’t even clear that tax increases are more saleable to the electorate than spending cuts. In Britain, a government with a huge mandate hasn’t entirely recovered from autumn’s tax-raising Budget, even though its brunt fell mostly on business. Twice, Emmanuel Macron has incurred protests that shook the French state. The first was against a tax rise.
… Either way, the welfare state as we have known it must retreat somewhat: not enough that we will no longer call it by that name, but enough to hurt. It was never designed for a world in which living to 100 is banal. It was never meant to enable such things as Britain’s current out-of-work benefits bill. The rise in social spending over the past century has been uncannily global — encompassing Japan, the US, Australia, Canada — but the absolute levels are highest in Europe. As the most militarily exposed of those places, this isn’t tenable.
… By now, quick-minded readers will have registered what a more militarised, less welfarist continent would evoke: the superpower that is turning from it. As a result of their geopolitical estrangement, Europe and America could end up looking much more like each other than they ever did as two blocks of a cohesive “west”. Whether this is an irony or a paradox or something else, it would be enough to raise half a smile, were the circumstances less desperate.
And there we have it in the last paragraph, Europe must become like the US. An imperial power with outsized defence spending and downsized social spending – all because of “big bad Russia”. War spending good, oligarch war profiteering good, social spending bad, taxes on rich people bad. While the US becomes more like Milei’s Argentina.
But the financial markets have gotten used to austerity combined with the money printing and excessively low interest rates that were required to cover over the cracks created by the early 2010s European Debt Crisis and then the pandemic shutdowns. Through 2022, the ridiculous negative interest rate on the German 10 year bond (that had been in place since April 2019) was replaced with yields above 2.5%. The yield had been below 1% since August 2014, an eight year period when increased risk taking, malinvestment and rising property prices had been facilitated. With the announcement by the leader of the CDS/CDU of much increased government spending funded with debt, the 10 year yield has jumped and is now threatening to break out above 3% and perhaps higher to levels not seen until before the 2008 GFC. The probability of greater fiscal spending across Europe has also spiked government bond rates in Italy and France (back to 2008 levels), and Spain (just below 2008 levels). UK government debt yields did not spike, but these were already back to pre-GFC levels.
With the very slow levels of European nominal GDP growth that is below these yields, such an environment could rapidly destabilize government finances and financial markets; requiring perhaps another ECB monetization event. Especially when so many countries have government debt levels above 100% of GDP, with Italy being the poster child (138% of GDP, with nominal GDP growth of 1.7% in 2024). The early 2010s European debt crisis was never properly resolved, and the continuing very low growth in (and recently contraction in some) European nations has always meant that Europe hovered near a new financial crisis with little wriggle room to spare; hence the government drives to keep interest rates extremely low. Borrowing money to throw at war spending and “infrastructure” does not fix Europe’s long-term problems. That would require an end to the self-harming anti-Russia sanctions, fixed and operating Nordstream I and II, the reversal of the previous tax cuts for the rich, disincentives to financial and property speculation, and an integrated industrial policy combined with increased government investment to grow the productive forces; all of which directly clash with the ruling ideology of the European oligarchy and their courtier class.
The same austerity BS helped wreck the British economy in the 2010s while the financial sector was bailed out from the GFC mess that it had created. Between the first quarter of 2008 and the third quarter of 2024 British GDP grew by only 18% (while the population grew by 11%), and has hardly grown at all since 2019; and it is stuck in a growth rate of 1% or below per annum.
Mark Blyth below on the history of the austerity idea, the reality is that the bourgeoisie want a state to provide the required functions that allow capitalism to exist but not one that provides benefits to the many, regulates their ability to make profits and taxes their riches. Therefore, they always want to keep the state on a short financial leash with the propagandist arguments that support austerity used to hide the real reasons. After 2008 it was also used to hide the fact that the rich few wanted to be bailed out by the many, even though they made out like bandits in the preceding boom.
Clara E. Mattei has also written an excellent book on this The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism. We need to remember that mainstream economics is a class project to obfuscate how the economy really works, while passing itself off as apolitical, to the benefit of the rich. Here she is talking about the book:
The best way to understand the economy is to read the works of such thinkers, and fully understand political economy, and as Steve Keen proposes – do not study mainstream economics in university. Doing the latter will reduce your understanding of how the economy and society works, as it is based on an utterly delusional, propagandist and intellectually limited model of human society.
When the oligarchy decides that austerity needs to be tossed, for example to help bail out the financial and corporate sector (i.e. the rich) from a crisis it created (2008 GFC and 2019 Repo-Crisis with the bailout hidden under the COVIC epidemic), no problem. Or to rescue the Ukraine proxy war project, and to provide the required increase in imperial tribute. To be followed by austerity for social spending, and even hidden increased taxes and fees on the less well off, to clean up the bail out at the expense of the majority. If it will serve the oligarchy there is never an issue with extra spending, as long as the oligarchy does not have to pay for the extra spending itself.
The New Dark Age 
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