The Washington Post published what I thought a very wise op-ed a couple of days ago. It was only when I was well into it that I realised the author's name. It began:
Talleyrand said of the Bourbon dynasty that ruled France both before and after that country's revolution: “They have learned nothing and have forgotten nothing.” Today, with the same shortsightedness, Europe's leaders stick unblinkingly to policies that the whole world can see have already failed.Having learned nothing and forgotten nothing, they have just announced yet another version of a seemingly never-ending succession of Greek rescue plans that they must surely know will not work.
But the unfolding tragedy of a bankrupt Greece is only a symptom of an even more fundamental miscalculation: a wrong-headed conviction, widely held across Europe, that if austerity is failing, it is because there is not enough of it.
Quite so. It continued:
Already the half of the euro zone that is in recession threatens to bring down the other half. But, by holding dogmatically to a policy of ever more austerity despite all the evidence of stagnation, Europe now threatens the economic recovery of not just the euro area but also the wider world. Understandably the biggest U.S. economic worry of 2012 is that of a recovery derailed in an election year by another sharp European shock.
I'm sure that's true. I can't quote it all, of course, but let me just highlight this:
A European banking model that is suffocating under such leveraging, financed by short-term borrowing, is fatally damaged and cannot survive without fundamental reform. That model also massively damages the prospects of economic recovery for a private sector that needs liquidity and investment to function efficiently.
And this:
Europe's loss of global competitiveness, however, presents an even more profound problem. A continent that was once responsible for 40 percent of the world's output is now producing only 18 percent – and within a decade it will produce little more than 11 percent. This is an epic shift, yet one virtually unnoticed. What Europe is experiencing may prove to be a permanent and irrevocable loss of prosperity.
Against this background, the obsession of Europe's leaders with imposing a swift and deep austerity seems hopelessly superficial and short-sighted. The debt-to-national-income ratio is the internationally agreed standard for measuring fiscal health and, not surprisingly, as growth falters, debt ratios in Greece, Spain, Portugal and Italy are not falling but rising. Yet the whole of Europe has signed up toGerman-led austerity that will ensure the levels of growth that could reverse this rise remain impossible to achieve.
With Europe unable to generate its own growth without outside support, a coordinated global growth plan – a modern and international equivalent of the Marshall Plan – is the only way to stem the continent's decline and prevent a new European recession from pulling down the rest of the world. China should raise its consumer demand and import more, giving U.S. and European industry a boost in confidence. Europe and America should expand investment in infrastructure.
Perhaps I should send him The Courageous State.
Perhaps he should also talk to Ed Balls.
Because Labour has to get this, and soon.
Hat tip: Andrew Dickie
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While I agree with a lot of this, I’d challenge “What Europe is experiencing may prove to be a permanent and irrevocable loss of prosperity.”
Bruges has gone from being one of the richest cities in the world to a sleepy backwater, without any problem for the locals. The challenge is to educate people to realise that what they have is sufficient and that an ever greater search for more material prosperity is not going to lead to greater happiness.
It is perfectly possible that this all ends well for Europe. Were the Greeks any happier between 2000-2006 in the midst of a credit fuelled boom than they were in the 1980s? Probably not, because for every person who gets an exciting job in finance/new media/marketing etc in Athens there was a family in some far flung Island whose dynamic that has lasted for centuries was torn apart.
Europe is losing political and economic power on the world stage. The challenge now is to manage the decline in the interest of the citizens of Europe, not to postpone the decline for the benefit of the “European project”.
Maybe true Paul but never doubt that the transition will be hard
As a Quaker I believe in simplicity – but the world does not as yet – and it will be tough whilst they get their heads round it
My reaction was similar to Roger’s.
I realise the problem is complex and I’m naive in these matters, but I feel compelled to question the interpretation implicit here:
“A continent that was once responsible for 40 percent of the world’s output is now producing only 18 percent – and within a decade it will produce little more than 11 percent. This is an epic shift, yet one virtually unnoticed. What Europe is experiencing may prove to be a permanent and irrevocable loss of prosperity.”
Why should we expect – or even wish – that our continent should continue indefinitely to control such an exaggeratedly high proportion of the world’s wealth, a legacy of empire and colonialism? What these figures show is that Europe is indeed experiencing a loss of relative prosperity, with respect to the world at large. This in itself is surely normal and desirable in the interests of worldwide social justice? Or do we still feel that we in the “west” (or the “north” or whatever the preferred euphemism is these days) have an inalienable right to greater prosperity than the rest of humanity?
This loss of relative prosperity does not, in and of itself, necessarily equate to a ‘permanent and irrevocable loss’ of absolute prosperity, but rather a fairer distribution of the world’s resources. What is however clear is that, at the same time as the developing world is (rightfully) claiming a larger share, the prosperity we undoubtedly have in Europe is more and more unequally shared as the wealthy and powerful claim an ever-increasing share, so that many are indeed suffering real and painful losses which the current austerity measures will do nothing to alleviate.
As Richard suggests, the transition will not be easy to manage, but it seems to me inevitable and desirable that it is tackled if large-scale unrest and war are to be avoided.
Gordon Brown says we need a ‘global growth plan’ and most commentators still seem to emphasise the need for continued growth. But how realistic is that in the face of the finite resources of our planet? A growing number of respected economists are now saying that we desperately need another model that does not depend on the illusion of growth ad infinitum, but it seems GB is not among them. I am currently reading (in French) “Pour Eviter le Krach Ultime” by Pierre Larrouturou – French economist and member of “Europe Ecologie les Verts” – which I would highly recommend to those who can cope with French (clearly written and with practical suggestions at the end of each chapter). I think Richard would find a lot of common ground there.
I think global growth must include the understanding that growth embraces something a lot broader than consumption of goods – it includes services too for which we have unlimited potential, and of which we need many more.
Good point Richard.
Thanks.
I raise Brown’s Tallyrand for a Chateaubriand, “I have heard of men banging their heads against a wall, but it is rare to see men build a wall specially to bang their heads against.” I fear that Brown’s problem of communication with the aspirational society is part of a broader problem of intellectual argument in the present age. We all await the turning point.
Oh my days. A modern Marshall Plan? The US – and, presumably, China – should pay to drag Europe out of its self-imposed slump? Why?
What is needed is for European leaders to adopt pro-growth policies, not stick to their useless and counterproductive austerity agenda then go cap in hand to other countries to bail them out when it inevitably goes wrong.
Note what he says that comprises: it means countries like China consuming
He didn’t actually say it had to be aid
If he had I would not agree with him
China seems to be very interested in exporting to Europe and not so interested in increasing domestic demand to attract European imports. Rather like Germany, really. But China has shown willingness to invest directly in European countries.