Monday, October 15, 2012

Whilst Europe abandons it

UPDATE:

The Economist may have discovered that the right social democratic institutions can achieve equality and efficiency, but the European Union, where social democracy was invented, is running as hard as it can in the opposite direction. Witness Olli Rehn's astonishingly reality-challenged assessment of austerity here.

Under the remarkable title 'Europe lays the foundations for growth' Rehn comes up with a series of implausible statements, including 'now is not the time to turn away from policies that have led to this improvement (what improvement?) and that are contributing to a gradual return of confidence in the euro area'. The essence of what Rehn is saying is that austerity might have negative effects on growth, but that that only 'merits further study', and that basically the PIIGS are in a mess because of their own economic weaknesses, and the crisis is nothing to do with EU or ECB policy.

So a debt boom in the mid-2000s had nothing to do with the ECB adopting a policy that gave monetary stimulus to Germany whilst giving the Eurozone periphery negative real interest rates. OK then.

Rehn, of course, as a Finn should know something about social democracy. He should also remember the financial crisis and employment shocks suffered by Nordic countries in the 1990s. But luckily for Finland, they were able to address these problems whilst the rest of Europe was growing, so Spaniards and Greeks had some cash to buy Nokia mobile phones (does Finland make anything else?).

Spain and Greece will have to manage on their own. That they are ill-equipped to do that is hard to miss at this point. Once again, Nobel-prize winning Europe is not up to the task. If the EU survives all this in anything like its current shape, it will be a miracle.