[Marxism] Europe’s Many Economic Disasters

Louis Proyect lnp3 at panix.com
Fri Jul 3 09:49:46 MDT 2015

(An interesting but ultimately inadequate article by Krugman. It is 
focused on the financial contradictions of the eurozone but the 
"disasters" are related to an economic downturn that defies Keynesian 
solutions. What we are dealing with now is a "new normal" in which high 
unemployment and scapegoating of immigrants, etc. dominate every 
country. The only way that this will change is through a complete 
transformation of property relations that will allow production based on 
social need rather than private profit to take place. As utopian as this 
sounds, it is ultimately the only one that is realistic.)

NY Times Op-Ed, July 3 2015
Europe’s Many Economic Disasters
by Paul Krugman

It’s depressing thinking about Greece these days, so let’s talk about 
something else, O.K.? Let’s talk, for starters, about Finland, which 
couldn’t be more different from that corrupt, irresponsible country to 
the south. Finland is a model European citizen; it has honest 
government, sound finances and a solid credit rating, which lets it 
borrow money at incredibly low interest rates.

It’s also in the eighth year of a slump that has cut real gross domestic 
product per capita by 10 percent and shows no sign of ending. In fact, 
if it weren’t for the nightmare in southern Europe, the troubles facing 
the Finnish economy might well be seen as an epic disaster.

And Finland isn’t alone. It’s part of an arc of economic decline that 
extends across northern Europe through Denmark — which isn’t on the 
euro, but is managing its money as if it were — to the Netherlands. All 
of these countries are, by the way, doing much worse than France, whose 
economy gets terrible press from journalists who hate its strong social 
safety net, but it has actually held up better than almost every other 
European nation except Germany.

And what about southern Europe outside Greece? European officials have 
been hyping the recovery in Spain, which did everything it was supposed 
to do and whose economy has finally started to grow again and even to 
create jobs. But success, European-style, means an unemployment rate 
that is still almost 23 percent and real income per capita that is still 
down 7 percent from its pre-crisis level. Portugal has also obediently 
implemented harsh austerity — and is 6 percent poorer than it used to be.

Why are there so many economic disasters in Europe? Actually, what’s 
striking at this point is how much the origin stories of European crises 
differ. Yes, the Greek government borrowed too much. But the Spanish 
government didn’t — Spain’s story is all about private lending and a 
housing bubble. And Finland’s story doesn’t involve debt at all. It is, 
instead, about weak demand for forest products, still a major national 
export, and the stumbles of Finnish manufacturing, in particular of its 
erstwhile national champion Nokia.

What all of these economies have in common, however, is that by joining 
the eurozone they put themselves into an economic straitjacket. Finland 
had a very severe economic crisis at the end of the 1980s — much worse, 
at the beginning, than what it’s going through now. But it was able to 
engineer a fairly quick recovery in large part by sharply devaluing its 
currency, making its exports more competitive. This time, unfortunately, 
it had no currency to devalue. And the same goes for Europe’s other 
trouble spots.

Does this mean that creating the euro was a mistake? Well, yes. But 
that’s not the same as saying that it should be eliminated now that it 
exists. The urgent thing now is to loosen that straitjacket. This would 
involve action on multiple fronts, from a unified system of bank 
guarantees to a willingness to offer debt relief for countries where 
debt is the problem. It would also involve creating a more favorable 
overall environment for countries trying to adjust to bad luck by 
renouncing excessive austerity and doing everything possible to raise 
Europe’s underlying inflation rate — currently below 1 percent — at 
least back up to the official target of 2 percent.

But there are many European officials and politicians who are opposed to 
anything and everything that might make the euro workable, who still 
believe that all would be well if everyone exhibited sufficient 
discipline. And that’s why there is even more at stake in Sunday’s Greek 
referendum than most observers realize.

One of the great risks if the Greek public votes yes — that is, votes to 
accept the demands of the creditors, and hence repudiates the Greek 
government’s position and probably brings the government down — is that 
it will empower and encourage the architects of European failure. The 
creditors will have demonstrated their strength, their ability to 
humiliate anyone who challenges demands for austerity without end. And 
they will continue to claim that imposing mass unemployment is the only 
responsible course of action.

What if Greece votes no? This will lead to scary, unknown terrain. 
Greece might well leave the euro, which would be hugely disruptive in 
the short run. But it will also offer Greece itself a chance for real 
recovery. And it will serve as a salutary shock to the complacency of 
Europe’s elites.

Or to put it a bit differently, it’s reasonable to fear the consequences 
of a “no” vote, because nobody knows what would come next. But you 
should be even more afraid of the consequences of a “yes,” because in 
that case we do know what comes next — more austerity, more disasters 
and eventually a crisis much worse than anything we’ve seen so far.

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