Results of European Elections Points to More Inflationism

From Bloomberg,

Francois Hollande, who defeated French President Nicolas Sarkozy to become the first Socialist in 17 years to control Europe’s second-biggest economy, pledged to push for less austerity and more growth in the region.

“Europe is watching us,” he told supporters in Tulle, France, last night after he won about 52 percent of the vote. “Austerity isn’t inevitable. My mission now is to give European construction a growth dimension.”

Hollande inherits an economy that is barely growing, with jobless claims at their highest in 12 years and a rising debt load that makes France vulnerable to the financial crisis that has rocked the euro region the past two years. Sarkozy became the ninth euro leader to fall in that time and the first French president in more than 30 years to fail to win re-election.

Hollande’s comments were echoed in Greece, where voters flocked to anti-bailout groups, leaving the two main parties, New Democracy and Pasok, a seat short of a majority if they govern together, an Interior Ministry projection showed. His victory may sharpen tensions with key allies with Hollande advocating a more aggressive European Central Bank role in spurring growth -- a measure opposed by Germany.

As I earlier said politics has always been about gross distortions of reality and the manipulation of the public.

There really has been no “austerity” going on in the crisis affected Eurozone economies. Just look at how ECB’s balance sheets have been exploding…

chart from mybudget360.com

As I wrote earlier,

What has been really happening has been a transfer or a redistribution of resources from both the private and the public sectors into the politically privileged banking system. Taxes have been increased or are in the process of being raised to pay for the bailouts of the banks.

In genuine austerity programs, resources would be made available for the productive use of the private sector. This means growth in the private sector relative to a reduction of government expenditures.

So with the so-called “pro-growth anti-austerity” governments in power, the policy options likely to be taken by them will be 1) to stop the bailouts of the banking system and to resume welfare spending or 2) have the ECB finance both the banking system and the welfare state. [As an aside, the pro-growth and or anti-austerity is actually a mislabel, which in reality, should be called “pro-welfare” governments]

Cato’s Dan Mitchell has a fitting description,

the new political parties are pro-bailout. They are quite happy to mooch off German taxpayers, American taxpayers, and anyone else who is stupid enough to send money (after all, somebody has to finance critical functions of government, such as collecting stool samples from people who want to set up online companies and subsidizing pedophiles).

What gets them upset is the notion that they should do anything in exchange for these handouts. Perish the thought!…

And given the current budgetary mess they are into and given the market’s reluctance to finance them, both options imply more reliance on the ECB to backstop their proposed spending.

Said differently, if the pro-welfare governments act to fulfill on their campaign platform promises of more welfare spending, then I expect increased pressure on the ECB to finance their spending splurges. And if the ECB complies, then we are likely to see even more bailouts mostly through inflationism.

Of course I expect the US Federal Reserve to work behind the scenes to assist the ECB as they have done so, like in the recent past.

Also if these governments will insist on imposing policies based on the Santa Claus (Free Lunch) principle, and refuse to see the reality through lens of the law of scarcity, then we may see defaults to occur soon, or if not, the EU may die a natural death either from internal political dissension or hyperinflation.

Worst is that instead of achieving the objectives of an EU integration which in part has been meant to avert perennial wars of the past, more political redistribution will mean more discord that raises the risks of war.

Writes Professor Philipp Bagus

The EMU provokes conflicts between otherwise peacefully cooperating nations. Redistribution is always a potential cause of social stress. The monetary redistribution in the EMU was not understood by the bulk of the population and, thus, did not cause conflicts. The bailouts, the rescue fund, and the interventions of the ECB that were ultimately caused by the setup of the EMU have made the redistribution between countries more obvious.