Growth or austerity

After the referendum on the future of Europe taking place in France and Greece Sunday, May 6 – as the elections in those two states have been called – evaluated as a democratic rejection of the austerity policy pursued by the German-French Merkel-Sarkozy duo in the ensemble of the eurozone and, practically, in the EU, both commentators and politicians now focus on one crucial question: Will Germany – actually the Bundesbank – the true driver of the European austerity policy, give in to this referendum? Will it say that the ascension of extremist political forces highlighted by these electoral consultations – similar in its consequences to the one in France and The Netherlands in 2005, when the public rejected the EU Constitution – is a smaller threat to the future of Europe than embarking on an economic growth policy, unavoidably accompanied by inflation especially in Germany?It is an incontrovertible fact that the message of the referendum in France and Greece has been understood. At least for the moment, Germany cannot give in. Both a large share of the public and politicians advocate austerity combined with reforms, a magic couple capable of securing future economic growth. This is the recipe applied by Germany in the late 1990s of the last century and in the first years this millennium, which made it the undisputed economic engine of Europe. But the consultation of the French and Greek electorate demonstrated that austerity is rejected or, as ‘Die Welt daily was stating last week,  ‘In the end the results are proof that Europe doesn’t work. Countries still debate within their own national borders because there is no European public space.’Another indubitable fact is that opinions on the matter are very much divided. IMF head Christine Lagarde, for example, believes the ‘austerity versus growth’ debate is a false issue and that they can both be achieved through a mix of policies excluding extremely tough consumption restrictions. On the other hand, European Commission President Manuel Barroso was saying, right after the elections in France and Greece, that Europe cannot have stability without economic growth: ‘We cannot have stability without growth.’On the other side of the Atlantic, in the US, in a blog post on May 11, Paul Krugman, is certain about what he calls the ‘abject failure’ of the kind of austerity the EU upholds. He finds that ‘The latest in the attempt to make excuses for the abject failure of austerity is the claim that European countries didn’t really practice austerity after all.’ To demonstrate the falseness of such an assertion, Krugman takes the case of Ireland, pointing out in a documented manner that ‘Ireland has done austerity – some of it on the tax side, but much of it on the spending side. The same is true in Greece, Portugal, and Spain.’The signals sent down various channels from Berlin, where a crusade happened yesterday between the in-coming French president and the German chancellor, are nonetheless firm: we are not giving in, the future of the European organisation resides in the economic reform that will make it competitive in the future clash of the giants we expect to see this century. European Central Bank Board member and former Deputy Finance Minister in the German Government J. Asmussen addresses the question discussed here in terms that open up a different perspective: ‘Greece needs to be aware that there is no alternative to the agreed reform program if it wants to remain a member of the eurozone.’ So it ceased to be a purely theoretical and political dispute, but a genuine existential threshold for the European Union: either we keep austerity or Greece will have to exit the eurozone, the latter meaning – as Chancellor Merkel said – the end of the European project. In fact, the ‘Financial Times’ column on May 8 was warning with arguments that ‘Europe should prepare for Greek exit from eurozone.’The European public – which the previously quoted German newspaper deems inexistent – however has unmistakable and hard to combat landmarks. After all, the elections in France and Greece already mentioned as referenda, as well as in Germany, last Sunday, when the chancellor’s Conservatives obtained modest results compared to the emerging political actors such as the ‘pirates’ in an important state are such landmarks. The fact that the setting up of a post-election government in Greece remains unlikely for the time being, with the country headed for a new poll, is another landmark. And the list could well continue. A look at the forums of publications debating the austerity vs. growth dilemma either on the old continent or in the US however also reveal one fact which is not at all reassuring. There is an abundance of anti-capitalism and anti-liberalism positions, as well as references to new-Nazism as an expression of the totalitarian temptation of the few in front of the many (’99 per cent), which only suggests a radicalisation of ill omen for Europe’s political stability. Here are a few examples: ‘be careful you rich .1 percent. Push the poor too far and the balance of power will swing back to the masses (where it belongs) and all your wealth will count for nothing. Is revolution in the air?’; ‘Politicians’ arguments for forcing austerity are not credible. In 20 years, they have undone what workers have fought 200 years to achieve! Reforms are needed but which ones?’; ‘The Republicans and their economists, (…) have shown us their plans. Expand the military and cut social services for the elderly, students, the poor and children. These people are not the Republicans. They call themselves Republicans, but they are corporatists, and monopolists, I call it the Neo-Fascist Party and I challenge anyone to dispute it.’The debate we are discussing here has clearly encompassed not only the EU political establishment, at a national or European level, but also the general public, showing the signs of an unexpected radicalism. It is obvious that, far from being a matter of academic confrontation between the neo-Keynesians and their opponents, it has to be quickly resolved by political decision. Such a decision ought to consider Europe’s long term interests in the 21st century, one marked by the competition of giants. Or, from this point of view, the fact that the discussion on Greece’s leaving the euro zone has turned into something normal suggests a lack of understanding of the huge interests at stake. This is why a headline such as the one recently displayed by the known German publication ‘Der Spiegel’: ‘Akropolis Adieu. Time to Admit Defeat. Greece Can No Longer Delay Euro Zone Exit’ (May 14, 2012) does not reflect the adequate philosophy for building a common future for Europe.

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