European Elections: And So the Left Was Right
The Economist, near the end of January, finally admitted that “austerity” is proven to be no cure for our troubles.
Germany, France, Spain and Italy all managed to reduce their structural budget deficits, the latter three thanks to austerity. All are expected to reduce those deficits further this year, the International Monetary Fund said on January 24th. But this may not be good news. Austerity can unnerve markets, not calm them. …
… Carlo Cottarelli and Laura Jaramillo of the IMF say tighter fiscal policy, by hurting the near-term growth outlook, could actually lead to wider, rather than narrower, spreads. Cut the deficit too aggressively, in other words, and the negative impact on growth and the rise in the cost of debt service from higher spreads could result in a higher, not lower, debt-to-GDP ratio. Mr Cottarelli and Ms Jaramillo advise caution in interpreting these results: they may reflect circumstances unique to 2011. Their findings do not mean austerity should be avoided at all costs; but they do suggest it should be accompanied by steps to protect growth. ..Economist
It’s like watching the ice break up as spring arrives. Here’s the Economist again a few days later — in February. Think what this could mean for the American election:
If you think that the German-led European solution to the euro-zone crisis is deeply confused, and a lot of Americans do, then you have to be troubled by the ways in which it resembles what austerity proponents would have liked America’s response to the financial crisis to have been. Americans are starting to recognise that our recovery is further along than other advanced countries’ in part because the way we handled the financial crisis wasn’t really so awful. And that includes the stimulus.
The presidential election this year is in large measure a referendum on Barack Obama’s economic policies. In the broad terms in which it is seen by the electorate, it’s a debate over Keynesian deficit spending versus expansionary austerity. The 2010 elections took place at a moment when people seemed to have lost faith in Keynesianism. The 2012 elections are taking place at a moment when people have lost faith in expansionary austerity. … Economist
Well, last night that low-key democratic socialist, François Hollande, took France back from the flashy, failed austerian, Nicolas Sarkozy.
In France, the Socialist candidate, François Hollande, who has been critical of the austerity-only mind-set championed by Germany, defeated President Nicolas Sarkozy. Mr. Hollande’s view appears to be ascendant in the European Union, putting into doubt the euro stability pact agreed to late last year.
The French result “was much anticipated; there was no surprise,” Valérie Cazaban, a fund manager at Stratège Finance, said. The bigger question, she said was the June parliamentary elections, which will determine whether Mr. Hollande obtains the majority he needs to carry out his program.
The market reaction has been “very calm,” she said, noting that French bond yields were only slightly higher. …NYT
And now, at this hour, the French market is going up. So much for dreaded “socialism.” (Really, let’s get used to the not-very-left philosophy of social democracy and push the shriekers on the radical right into la poubelle with the ordures where they belong.)
NPR this morning mentioned that the Economist is now officially worried about Hollande. I guess we could turn Economist-watching into a square dance (take two steps left and turn all about…) Keep in mind the Economist’s praise, along the way, of Paul Krugman for having gotten it right. Krugman writes today about “those revolting Europeans.”The French are revolting,” he writes, “and the Greeks, too. And it’s about time.”
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. He is “rather dangerous,” declared The Economist, which observed that he “genuinely believes in the need to create a fairer society.” Quelle horreur!
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. …Paul Krugman, NYT
Finally we get to throw out the radical right and the belief that punishing the innocent produces a healthy economy. If Europe can throw ’em out, so can we — maybe as soon as November 2012.
Cross posted from Prairie Weather. /The copyrighted cartoon by Riber Hansson, Sweden, is licensed to run on TMV. Unauthorized reproduction prohibited.