Posted by AzBlueMeanie:
Yet another European leader has fallen as a result of conservative economics "austerity" measures, this time Nicolas Sarkozy of France. The French are revolting. The Greeks are too. And it’s about time.
Paul Krugman writes, Those Revolting Europeans (h/t graphic, crooksandliars.com):
Both countries held elections Sunday that were in effect referendums on the current European economic strategy, and in both countries voters turned two thumbs down. It’s far from clear how soon the votes will lead to changes in actual policy, but time is clearly running out for the strategy of recovery through austerity — and that’s a good thing.
Needless to say, that’s not what you heard from the usual suspects in the run-up to the elections. It was actually kind of funny to see the apostles of orthodoxy trying to portray the cautious, mild-mannered François Hollande as a figure of menace.
* * *
What is true is that Mr. Hollande’s victory means the end of “Merkozy,” the Franco-German axis that has enforced the austerity regime of the past two years. This would be a “dangerous” development if that strategy were working, or even had a reasonable chance of working. But it isn’t and doesn’t; it’s time to move on. Europe’s voters, it turns out, are wiser than the Continent’s best and brightest.
What’s wrong with the prescription of spending cuts as the remedy for Europe’s ills? One answer is that the confidence fairy doesn’t exist — that is, claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the past two years. So spending cuts in a depressed economy just make the depression deeper.
Moreover, there seems to be little if any gain in return for the pain. Consider the case of Ireland, which has been a good soldier in this crisis, imposing ever-harsher austerity in an attempt to win back the favor of the bond markets. According to the prevailing orthodoxy, this should work. In fact, the will to believe is so strong that members of Europe’s policy elite keep proclaiming that Irish austerity has indeed worked, that the Irish economy has begun to recover.
But it hasn’t.
So what are the alternatives?
One answer — an answer that makes more sense than almost anyone in Europe is willing to admit — would be to break up the euro, Europe’s common currency. Europe wouldn’t be in this fix if Greece still had its drachma, Spain its peseta, Ireland its punt, and so on, because Greece and Spain would have what they now lack: a quick way to restore cost-competitiveness and boost exports, namely devaluation.
* * *
Yet breaking up the euro would be highly disruptive, and would also represent a huge defeat for the “European project,” the long-run effort to promote peace and democracy through closer integration. Is there another way? Yes, there is — and the Germans have shown how that way can work. Unfortunately, they don’t understand the lessons of their own experience.
Talk to German opinion leaders about the euro crisis, and they like to point out that their own economy was in the doldrums in the early years of the last decade but managed to recover. What they don’t like to acknowledge is that this recovery was driven by the emergence of a huge German trade surplus vis-à-vis other European countries — in particular, vis-à-vis the nations now in crisis — which were booming, and experiencing above-normal inflation, thanks to low interest rates. Europe’s crisis countries might be able to emulate Germany’s success if they faced a comparably favorable environment — that is, if this time it was the rest of Europe, especially Germany, that was experiencing a bit of an inflationary boom.
So Germany’s experience isn’t, as the Germans imagine, an argument for unilateral austerity in Southern Europe; it’s an argument for much more expansionary policies elsewhere, and in particular for the European Central Bank to drop its obsession with inflation and focus on growth.
The Germans, needless to say, don’t like this conclusion, nor does the leadership of the central bank. They will cling to their fantasies of prosperity through pain, and will insist that continuing with their failed strategy is the only responsible thing to do. But it seems that they will no longer have unquestioning support from the Élysée Palace. And that, believe it or not, means that both the euro and the European project now have a better chance of surviving than they did a few days ago.
And what of our austerity-mongers in the Tea-Publican Party here in America? The Washington Post's Harold Meyerson writes, Europe finds austerity a tight fit:
Now, Europeans are rebelling against austerity. In France, Socialist Francois Hollande looks likely to displace Nicolas Sarkozy in Sunday’s presidential election. There are a host of reasons for Sarkozy’s unpopularity, but chief among them is his avid embrace of Merkel’s austerity pact. Hollande, by contrast, calls for governmental action to spur growth.
Nor is the emphasis on growth over austerity limited to the left. Italy’s technocratic prime minister, Mario Monti, who was installed to put his nation’s fiscal house in order, now argues that growth must precede austerity. The millions who marched down Europe’s boulevards on May Day concur. A mass movement for Keynesian economics is sweeping Europe, though Merkel’s Germany still is determined to thwart it — at least, until its order books grow skimpy.
The United States has austerity demons of its own, of course. While the private sector has rebounded somewhat from the 2008-09 collapse, creating 4 million jobs since the turnaround began in 2010, state and local governments have shed 611,000 employees — including 196,000 teachers — since President Obama took office, The Post’s Zachary A. Goldfarb reported. The shrinking of government ranks high among the drags on the U.S. recovery. The 2009 stimulus provided funding to states and cities that enabled them to keep many workers on the job, but when that funding began running out in 2010, layoffs, particularly among teachers, redoubled.
The lesson of 2008 was that unregulated finance ends in disaster. The lesson of the years since is that austerity in a time of economic weakness not only perpetuates that disaster but makes it worse. The world, one might think, would have learned this lesson from the 1930s; Germany, at least, should have. Alas, it apparently has to be relearned, painfully, again and again.