The EU Austerians Attack Each Other

By William K. Black

As things go from bad to worse in the eurozone the putative adults have begun to fight openly in front of the kids.  The putative adults, of course, have refused to act like adults for six years and instead have lived in a fantasy world in which austerity – bleeding the patient – is the optimal response to a recession.  As many of us have been warning for six years, this is a great way to create gratuitous recessions and even the Great Depression levels of unemployment in three nations of the periphery with 100 million citizens.

Italy has been forced by German demands for austerity into a third recession in six years, with France likely to experience the same fate.  Even Germany has stagnated and could fall into recession.  Instead of the four horsemen of the apocalypse, the three horses that make up a troika consist of the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission (EC).  The troika combined to force the entire eurozone to inflict austerity in response to the Great Recession.

The IMF was the first member of the troika to publish research demonstrating that austerity was harmful and fiscal stimulus in response to the crisis proved even more successful than economists anticipated.  The IMF has recently lowered the eurozone’s growth forecast substantially, urged Germany to increase its spending, and warned of a serious risk of deflation.

The New York Times recently wrote an article noting (but not explaining the significance of) Olli Rehn calling on Germany to increase government spending.  Germany has a budget surplus, severe unmet infrastructure needs, and a stagnating economy so its continuing austerity has become so irrational that even the crazies are starting to jump off the crazy train.  Rehn was the troika’s hit man on austerity, so his call for Germany to increase government spending is significant even though it does not indicate that Rehn is no longer an austerian.

Similarly, the ultra-austerian Dutch conservatives that have dominated key EU functions have added their voices to the call for Germany to cease its insanity.  As with Rehn, the Dutch conservatives remain fierce believers in austerity and claim that it leads, promptly, to growth.

Contemporaneously, the rider of the third horse of the troika, Mario Draghi, the head of the ECB, has pushed for Germany to increase its government spending on infrastructure and for the ECB to engage in quantitative easing.  German conservatives have responded by launching vicious attacks on Draghi.

Again, none of this indicates that Draghi has reconsidered his faith in austerity.  Indeed, Draghi, the IMF, and the Dutch conservatives are trying to broker a grand deal in which Germany would agree to increase governmental spending on much needed infrastructure in return for Italy and France capitulating more abjectly to German demands that they engage in a war on their workers’ wages.  From Angel Merkel’s perspective this later demand is not only ideologically pleasing, but also an “elegant” solution that will cause the (supposedly leftish) leaders of France and Italy to self-destruct by betraying their voters and their principles and discrediting their parties (as was done with great success in Portugal and Greece).

The fact that the German conservatives are demonizing Draghi for pushing for the grand bargain that would simultaneously aid German growth, safety, and convenience while discrediting Merkel’s political opponents is a telling indication of how ideological they are in their commitment to austerity and how fully they believe they have the right to rule by German diktat.  Given their (economically illiterate) attribution of virtue to budgetary surpluses by sovereign nations and moral failure to deficits it “must” follow that the larger the budgetary surplus that Germany runs the more uniquely virtuous Germans are because of their “self-sacrifice.”  The German rage at anyone who points out that for a nation state the entire concept of budgetary surpluses and deficits being defined as “moral” and “immoral” is nonsensical.  Ditto for anyone who points out that the claim that because surpluses are (supposedly) “good” large surpluses must be “great” is contrary to economic experience and theory and logic.  Specifically, the claim commits the logical fallacy of “composition.”

German conservatives consider it illegitimate for their eurozone allies to criticize Germany’s hegemony over the EU.  If Germans are uniquely virtuous (by running large budgetary surpluses) then Germany’s hegemony is morally sound.  “There is no alternative” (TINA) not only to austerity, but also to German domination of the Continent.  European “unity” has taken on a sinister cast

7 Responses to The EU Austerians Attack Each Other

  1. Erick Borling

    With bitter sarcasm I suggest that, to remedy their putative numbers (“money”) problems, they might want to hit the road to Bangladesh. Or, can we get some math and ethics education here please? It’s an emergency! I don’t feel very smart. …except when I tune in to “Tales from the non-MMT economists” then I feel like I’m stuck in a dark age with no damn money.

  2. I’m not an economist, but I’ve always wondered what the point was of pushing people into destitution and depravity. It seems to inevitably lead to collapse and or revolution and warfare, possibly global warfare on a scale never seen, where even the elites that caused the problem will also be exterminated. I mean, is that what these people are trying to push, a global labor force living in dumpsters and eating grass always on the cusp of violent retribution?

  3. Pingback: EU Ideologues “Crowd Out” Sanity - New Economic PerspectivesNew Economic Perspectives

  4. Erick Borling

    Free Speech, the obvious answer is that there is a belief that “spending money we don’t have,” (i.e. deficit spending) is a problem. I wonder where the austerians think the first units of American money came from? Or, if a new-born nation desires to initiate a fiat currency regime, where will the first units of currency come from? Just for simplicity let’s pretend that everyone in the entire nation is %100 percent trustworthy; then it doesn’t matter if the central bank simply tears up scraps of paper and writes “I.O.U. one unit of value,” and then declares it legal tender. Theoretically anyone can go to the gubmint and say, “I want to build a trail to a remote scenic location — would you the people pay me ten thousand units for it? YES, why not. Now I go to work on the trail, return and spend that money and so others are thereby employed as a result of this deficit spending. Me and those downstream want to save some money, and so the gubmint has to continue to “print money it never had.”

    So the idea behind full employment philosophy implied by the possibilities of MMT implementation is that the correct amount of money needed for fiscal expenditures is determined by the amount of work needed and desired by the people. It is not reasonably determined by arbitrary things like debt to gdp ratio or the negative number called the deficit. Such austerian delusions are the reason we ain’t got no damn money even with post-grad education, a burning desire to work, and lots of contribute to society.

    By the way, today was an NPR segment about a Eurozone third dip into recession, something that as far as I know, only MMT economists have been warning and yelling and shouting about for years. NPR interviewed David Wessel from the Brookings Institution/WSJ, whose description and prescription were such buffoonery that this segment surely MUST be the most embarrassing financial journalism of the year. Does someone know how to post the link that that here? It’s hilarious.

  5. Given their (economically illiterate) attribution of virtue to budgetary surpluses by sovereign nations and moral failure to deficits it “must” follow that the larger the budgetary surplus that Germany runs the more uniquely virtuous Germans are because of their “self-sacrifice.”

    Not to mention the debt we have to take on to provide for all those German commuters, immigrants (and of course the exporters), taken by our “native” brand of economists as “evidence” austerity is not happening at all …
    As far as I can tell Austrian School economics is in straight up denial over austerity.

  6. Pingback: Bill Black: EU Austerity Witch Doctors Attack Each Other | naked capitalism

  7. Well as it was said in Germany about Hilter at Heinrich Brünnings insane austerity policies that put Germany to an economic stand still: unsere letzte Hoffnung.

    Marine Le Pen is coming strong in France, in Italy where the industry becomes more and more desperate Beppe Grillo is now on the way to collect 500K signatures to get an referendum on the Euro. Although only advisory it is significant if those old romans do thumb down on the Euro.

    So these characters is now europes; unsere letzte Hoffnung.