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Friday, August 22, 2014

 
Austerity is giving Europe one of its greatest economic crises in history

by David Atkins

Matt O'Brien at the Wapo's Wonk Blog puts out this sobering graph and commentary:



As I was arguing last week, it's time to call the eurozone what it really is: one of the biggest catastrophes in economic history.

There have been plenty of those lately. And it's not just the Great Recession. It's the way we've struggled to make up the ground we lost since. The United States, for one, has had its slowest postwar recovery. Britain has had its slowest one, period. But, six and a half years later, Europe has distinguished itself by not having much of a recovery at all. And, as you can see above, that's about to make it worse than the worst of the 1930s.

...

It's a policy-induced disaster. Too much fiscal austerity and too little monetary stimulus have crippled growth like almost never before. Europe is doing worse than Japan during its "lost decade," worse than the sterling bloc during the Great Depression, and barely better than the gold bloc then—though even that silver lining isn't much of one. That's because, at this rate, it'll only be another year until the eurozone is well behind the gold bloc, too.

So how is Europe making the Great Depression look like the good old days of growth? Easy: by ignoring everything we learned from it.

Back then, there were two types of countries: ones that had left the gold standard, and ones that were about to. But that "about to" could take awhile. That's because governments were sentimentally attached to gold, even though, as Barry Eichengreen has shown, giving it up led to recovery. They simply equated the gold standard with civilization, so they were willing to sacrifice their economies for it. And sacrifice them they did. Although there were limits in extremis.
O'Brien goes on to compare the Euro itself and the fight by Eurozone countries to defend it as comparable to the gold standard. I think he's right to an extent, at least in terms of how the Euro has been constructed without the flexibility to allow Eurozone countries to spend themselves out of an economic crisis.

The idea of a single currency uniting European nations has a lot going for it. I'm no economist and thus not equipped to suggest a path forward, but there has to be a way to promote trade, travel and solidarity in Europe without denying Eurozone nations at varying stages of economic development the flexibility to do what is necessary to grow their economies.

I also suspect that the austerity mania has more to do with the elites' social and economic philosophy than it does with defense of the Euro per se. The Euro simply gives rich people with a perverse sense of cosmic justice the excuse to tell the plebs how much belt-tightening they need to do, under the excuse that the unified currency will collapse if they don't. Something tells me that the IMF would likely be doing the same thing to Greeks using the drachma that Germany is doing to Greeks using the Euro.

So yes, the Euro has its problems. But the mentality that leads to austerity economics and the abandonment of everything we learned since the Great Depression is by far the bigger problem.


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