Construction has been growing within the EMU in January and February (see Figure 1). As we mentioned in the first part, it is not clear to what extent the uncommonly mild weather in France and Germany contributed to the rise in construction activity. In Germany, it is quite obvious that orders in construction are rising because of the need to provide accommodation to refugees.

Figure 1

In southern Europe, there is no sign of an upturn. Figures for January are only available for Portugal. Construction is contracting in Italy and in Portugal. Spain still suffers from stagnation in construction and sees its dream of a rapid and strong recovery go up in smoke. We will see later on what the official statistics make of this.

Figure 2

There is a clear upward trend in retail trade within the two major countries (see Figure 3). France recovered from a short decrease and is now growing and Germany took another step upwards at the end of 2015, after a long period in which no positive dynamics could be identified. The growth of retail trade in both countries is caused by the growth of real wages because of the slight deflation. I will return to this in the conclusions.

Figure 3

In southern Europe, however, the stagnation in retail revenues continues (see Figure 4). The situation is particularly catastrophic in Greece. Six months after the implementation of the latest stage of the ‘reforms,’ absolutely nothing positive is happening in Greece. On the contrary, the country is kept in a systematic stranglehold. That Greece also has to bear the brunt of coping with the influx of refugees is beyond belief.

Figure 4

Unemployment in the EMU as a whole is still well above ten percent. Two of the big countries, France and Italy, remain stuck at this level (see Figure 5). This is proof positive of the blatant economic policy failure, because both countries adopted the German ‘flexible model’ for their labour market policies. It does not work in the slightest.

Figure 5

Aside from Germany, Ireland is the only country (and also the only crisis country) where unemployment has decreased and this is clearly due to an economic turnaround. An economic upswing in Cyprus is often being reported. In reality, Cyprus did not evolve away from it crisis level at all.

Figure 6

The evolution of prices in the EMU also remains problematic (see Figures 7 and 8). Both production prices and the consumer prices remain far below the level that would signal normal and stable development.

Figure 7

Figure 8 

Conclusions

As we have just shown for Japan (see here), it is and remains very difficult to explain how it is possible that wages do not rise in a country for decades and that there is deflation, but that nonetheless nothing else happens than that deflation is being fought with monetary policy. Any sensible person would have to ask why it remains impossible for the social partners (with the government being part of it and with the government pressuring the social partners if necessary) to reach an agreement to let nominal wages rise by two per cent above productivity growth. This would increase the rate of inflation, while real wages would remain about unchanged. This is truly a complete win-win situation: it does not harm anyone; it stops deflation and allows countries to return to a normal monetary policy.

This is not possible, probably because companies are reluctant to let wages rise. Perhaps they point to the possible loss of competitiveness if rising wages cannot be offset by currency devaluations. As there are no international rules dealing with this problem, everyone tries to cut the Gordian knot for himself and continues to combat deflation with the wrong instruments, as Japan as has been doing for over 25 years by now.

All of this becomes even more outspoken dysfunctional when the original wage restraints are demanded by the government and actively enforced by it, as happened in Europe or Germany. In such a case, it is hypocritical as well as absurd to argue that the state does no longer have the power to reverse the situation. Those who argue this – and there are many – say in effect that the state can only work in one direction, never in the other one. The state can only work for the benefit of companies, good business environments. Basically, it can only co-produce stagnating wages, flexible labour markets and cuts in social welfare. It can never do anything else. If that is indeed the case, and the whole debate on inequality – the fact that companies and the corporate world are politically absolved from any responsibility – shows that it is, then no other conclusion can be reached than that democracy has degenerated into plutocracy.