Saturday, May 05, 2012


"THE greatest short-term threat to the world economy continues to be Europe's debt crisis. The progress of the euro-zone crisis will, in turn, depend on the length and depth of the euro-area ecession. If output is shrinking and unemployment rising, then austerity measures are likely to make economic conditions worse while raising very little new revenue. The euro zone may fall ever deeper into a hole. That's an unnerving possibility. After shrinking in the fourth quarter of 2011, the euro-zone economy showed early signs of life in 2012. They were not to last. The soothing effect of the European Central Bank's trillion-euro effort to prop up the European banking system was wearing off by March. The latest industrial production and employment figures suggest a new phase of economic weakening may have begun. An analysis of recent data points by Now-Casting, which publishes "real-time" economic forecasts, suggests that the euro zone may have narrowly avoided contraction in the first quarter. That good fortune doesn't seem likely to persist through the second quarter. Even worse, contraction in the third quarter now looks a real possibility"
"Tracking the Euro-zone eonomy in real time." The Economist. 27 April 2012, in
"Senior European officials are championing an investment pact to stimulate economic growth in the eurozone as voters in France and Greece look set to punish leaders who have backed austerity measures."
Peter Spiegel & Hugh Carnegy, "Brussels signals shift to growth plan as voters look set to reject austerity." The Financial Times. 5 May 2012, in
"This is like the Titanic. If there’s a sinking here, even the first-class passengers drown."
Jose Manuel Garcia-Margallo, Spanish Foreign Minister, quoted in the Financial Times, in: Victor Mallet, "Vulnerable Banks under spotlight." 27 April 2012, in
With the fast approaching electoral ouster of the Sarkozy Government in France, following on the heels of the downfall of the Center-Right, austerity-driven, cabinet in the Netherlands, and the electoral weaknesses recently spotted in the UK's own, version of the same, it is time to consider the idea that the electoral drawnbacks of the politics of austerity have finally arrived. For some of course, like the American Nobel economist, Paul Krugman, it is a case of not a moment too soon, but, taking a historical perspective, it should not come entirely as a surprise the that fillip, that the (mostly) center-right in Europe has gained from promoting the politics of austerity has finally exhausted itself 1. Au fond, this should not be in the least surprising. Electorally speaking, regimes which endeavor to follow along the path of austerity, in a declining economic horizon, inevitably face unpopularity and soon enough ejection from the seats of power. The Great Depression examples of the Labor Government in 1931, The Bruning Cabinet in 1932, followed soon enough by the rejection of Hubert Hoover from the American Presidency are the most salient examples. The politics of 'austerity' can only truly be said to work, when they commence at the bottom of an economic cycle, `a la say the UK in 1992 or Sweden and Canada in almost exactly the same time period. In all three cases, 'austerity' was soon enough followed by a long-term economic upswing, due partly to the simple dynamics of the economic cycle and to the fact that the rest of the world economy was growing by leaps and bounds. Then and only then, does 'austerity' as a political tactic or slogan garner positive political dividends. As the alleged austerity is associated with rising economic growth and lower unemployment. Whether accurately or not, such cyclical improvements in the economy are thereby attributed to the rigors of austerity. What however the countries of the EU have experienced in the past three years is austerity in the midst of a sustained and indeed, in some countries (Greece, Italia, Portugal, and to an extent Ireland) deepening down-turn. In those and indeed soon enough other cases, the alleged benefits of austerity, qua austerity, are soon enough shown to be completely baseless. Which is not to gainsay the idea that many of the economies of the European Union need, nay require profound adjustments to their economic structures and in particular to their labour markets. The issue is merely that in the midst of the greatest economic crisis since the end of the Second World War, cuts in government spending and pro-cyclical fiscal policies are on the face of it, senseless and self-defeating. As many of the more intelligent economists have been repeating to all and sundry low these many, many months 2. And which finally segments of European Union officialdom are finally starting to realize, albeit rather late in the economic cycle 3. Given the stakes involved, the reference to the Titanic by the Spanish Foreign Minister is indeed not without merit in this context.
1. For the lastest most sustained view of matters from this Nobel Prize winning economist (other that is from his regular column and blog in the New York Times), see: Paul Krugman, "How to End this Depression". The New York Review of Books. 24 May 2012, pp. 12-14. For the problems that the UK's Centre-Right, Tory-Liberal coalition government is currently facing, see: James Forsyth, "Cameron's season of sorrows is not over yet." The Spectator. 28 April 2012, p. 12. For a historical example from the entre deux guerre period, see Lord Skidesky's, classic oeuvre on the subject from the British case: Politicians and the Slump: The Labour Government, 1929-1931. (Revised edition, 1994).
2. See in particular the columns of Martin Wolf, Wolfgang Munchau & Lawrence Summers among others in the Financial Times. For recent examples, see: Martin Feldstein, "Taxpayers must backstop Spain's budget. 30 April, 2012, in; Wolfgang Munchau, "The Prize for European Political Illiteracy." 8 April 2012, in; Martin Wolf, "The State of the UK Economy." 4 May 2012, in
3. See Spiegel, op. cit.


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