{"id":19124,"date":"2012-05-21T12:00:41","date_gmt":"2012-05-21T11:00:41","guid":{"rendered":"http:\/\/www.transcend.org\/tms\/?p=19124"},"modified":"2012-05-20T08:01:51","modified_gmt":"2012-05-20T07:01:51","slug":"those-revolting-europeans-how-dare-the-french-and-greeks-reject-a-failed-strategy","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2012\/05\/those-revolting-europeans-how-dare-the-french-and-greeks-reject-a-failed-strategy\/","title":{"rendered":"Those Revolting Europeans: How Dare the French and Greeks Reject a Failed Strategy!"},"content":{"rendered":"

The French are revolting. The Greeks, too. And it\u2019s about time.<\/em><\/p>\n

Both countries held elections Sunday [6 May 2012] that were in effect referendums on the current European economic strategy, and in both countries voters turned two thumbs down. It\u2019s 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 \u2014 and that\u2019s a good thing.<\/p>\n

Needless to say, that\u2019s 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 Fran\u00e7ois Hollande<\/a> as a figure of menace. He is \u201crather dangerous,\u201d declared The Economist, which observed that he \u201cgenuinely believes in the need to create a fairer society.\u201d Quelle horreur!<\/p>\n

What is true is that Mr. Hollande\u2019s victory means the end of \u201cMerkozy,\u201d the Franco-German axis that has enforced the austerity regime of the past two years. This would be a \u201cdangerous\u201d development if that strategy were working, or even had a reasonable chance of working. But it isn\u2019t and doesn\u2019t; it\u2019s time to move on. Europe\u2019s voters, it turns out, are wiser than the Continent\u2019s best and brightest.<\/p>\n

What\u2019s wrong with the prescription of spending cuts as the remedy for Europe\u2019s ills? One answer is that the confidence fairy doesn\u2019t exist \u2014 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.<\/p>\n

Moreover, there seems to be little if any gain in return for the pain. Consider the case of Ireland<\/a>, 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\u2019s policy elite keep proclaiming that Irish austerity has indeed worked, that the Irish economy has begun to recover.<\/p>\n

But it hasn\u2019t. And although you\u2019d never know it from much of the press coverage, Irish borrowing costs remain much higher than those of Spain or Italy, let alone Germany<\/a>. So what are the alternatives?<\/p>\n

One answer \u2014 an answer that makes more sense than almost anyone in Europe is willing to admit \u2014 would be to break up the euro<\/a>, Europe\u2019s common currency. Europe wouldn\u2019t be in this fix if Greece<\/a> 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.<\/p>\n

As a counterpoint to Ireland\u2019s sad story, consider the case of Iceland, which was ground zero for the financial crisis but was able to respond by devaluing its currency, the krona (and also had the courage to let its banks fail and default on their debts). Sure enough, Iceland is experiencing the recovery Ireland was supposed to have, but hasn\u2019t.<\/p>\n

Yet breaking up the euro would be highly disruptive, and would also represent a huge defeat for the \u201cEuropean project,\u201d the long-run effort to promote peace and democracy through closer integration. Is there another way? Yes, there is \u2014 and the Germans have shown how that way can work. Unfortunately, they don\u2019t understand the lessons of their own experience.<\/p>\n

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\u2019t like to acknowledge is that this recovery was driven by the emergence of a huge German trade surplus vis-\u00e0-vis other European countries \u2014 in particular, vis-\u00e0-vis the nations now in crisis \u2014 which were booming, and experiencing above-normal inflation, thanks to low interest rates. Europe\u2019s crisis countries might be able to emulate Germany\u2019s success if they faced a comparably favorable environment \u2014 that is, if this time it was the rest of Europe, especially Germany, that was experiencing a bit of an inflationary boom.<\/p>\n

So Germany\u2019s experience isn\u2019t, as the Germans imagine, an argument for unilateral austerity in Southern Europe; it\u2019s 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.<\/p>\n

The Germans, needless to say, don\u2019t 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 \u00c9lys\u00e9e 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.<\/p>\n

___________________<\/p>\n

Paul Krugman<\/em> joined The New York Times in 1999 as a columnist on the Op-Ed Page and continues as professor of Economics and International Affairs at Princeton University. He received his B.A. from Yale University in 1974 and his Ph.D. from MIT in 1977. He has taught at Yale, MIT and Stanford, and is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes. On October 13, 2008, it was announced that Mr. Krugman would receive the Nobel Prize in Economics.<\/em><\/p>\n

A version of this op-ed appeared in print on May 7, 2012, on page A23 of the New York edition with the headline: Those Revolting Europeans.<\/h6>\n

Go to Original \u2013 nytimes.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The French are revolting. The Greeks, too. And it\u2019s about time. Both countries held elections Sunday [6 May 2012] that were in effect referendums on the current European economic strategy, and in both countries voters turned two thumbs down. It\u2019s 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 \u2014 and that\u2019s a good thing.<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[146],"tags":[],"class_list":["post-19124","post","type-post","status-publish","format-standard","hentry","category-economics"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/19124","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=19124"}],"version-history":[{"count":0,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/19124\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=19124"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=19124"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=19124"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}