EU Austerity as Frat House Hazing

By William K. Black

The European Union (EU) is stagnating because of austerity.  Austerity in response to the Great Recession has already, gratuitously, forced the eurozone into recession and roughly one-third of its population live in nations with Great Depression levels of unemployment.  Austerity has now thrown Italy into its third recession in six years and may well do so in France.  One might think that even the troika would respond to this track record of failure and anguish by deciding to stop smashing the eurozone’s economy with the hammer of austerity.

Instead, the austerians are taking the position that no one who disagrees with their discredited creed should be allowed to hold a prominent EU position.  That is their characteristic response to the recurrent falsification of their creed.  But the austerians have adopted a fallback position – even if austerian is economically illiterate and self-destructive, it’s not fair to avoid inflicting that destruction on every EU nation because other EU nations have already been damaged by austerity.

“‘The French government announced that no further effort will be demanded of the French, and this is my biggest concern,’ said Esther de Lange, another conservative Dutch lawmaker. ‘How are you going to explain to the Greeks, to the Portuguese, to the Irish, even to the Dutch, that they had to take measures and that the French don’t?’ she asked [Pierre Moscovici, France’s former finance minister who has been selected for an EU economics post].

His critics fear that France might be given leniency in meeting deficit targets while other countries continue to struggle after years of painful austerity in trying to meet budgetary targets.”

Yes, the EU is now officially a fraternity, and austerity is its hazing ritual.  Yes, they know that austerity is stupid, juvenile, and dangerous, but, hey, they had to suffer it so everybody else, particularly France, must experience the “painful” and self-destructive damage of austerity.

But that bit of sophomoric EU hazing (accompanied by Prime Minister Merkel’s salivating at the prospect of devouring her signature side-dish of Spätzle seasoned with a double-dollop of Schadenfreude at the prospect of forcing the French Socialists to destroy their party and screw the workers via austerity) is matched by the illiteracy of the New York Times’coverage of EU austerity as hazing.  Savor these sentences, which are written as if they represented indisputable fact:

“Mr. Moscovici also drew criticism from British lawmakers. Their country does not have the euro as its currency but it is subject to European Union debt and deficit rules, and it has a strong interest in a prosperous and stable Continental economy.

‘Not looking forward to Moscovici’s ‘over creative interpretation of the rules’ — isn’t that what caused the EZ crisis?’ Kay Swinburne, a British lawmaker with the Conservative Party, wrote on Twitter, referring to the eurozone crisis.”

The reporter later doubles down on Swinburne’s mythical meme.

“The French budget deficit is sore topic because of the way France and other big countries, including Germany flouted the rules, known as the Stability and Growth Pact, in the decade leading up to the sovereign debt crisis that nearly destroyed the euro currency union.”

Let’s take this very slowly for the benefit of the reporter and Swinburne.  First, the Brits should have “a strong interest in a prosperous and stable Continental economy.”  They should have an even stronger interest in the well-being of the eurozone’s and the EU’s citizens.  They should have a strong interest in a democratic, politically stable EU.  Austerity poses the gravest danger to each of these “strong interest[s].”

No, non-austerity is not “what caused the [eurozone] crisis.”  The initial eurozone crisis was caused by the global financial crisis.  It is remarkable how the NYT crew ignores the global financial crisis, the Great Recession, and austerity.

The second eurozone crisis was caused by austerity – and that crisis continues to devastate much of the eurozone.  It had nothing to do with “France and other big countries, including German flouting” deficit rules.  Only Greece, one of the EU’s smallest economies, got in trouble due to gaming (with the aid of Goldman Sachs) the EU deficit rules.  Even in Greece’s case this is only one of the factors that prompted the bond vigilantes’ attack on its debt.  In any event, the ECB at all times had the ability to end the bond vigilantes’ assaults on eurozone nations’ sovereign debt – and it did not need austerity to stop their depredations.  The ECB proved that by easily and promptly ending the vigilantes’ reign of terror while virtually every eurozone nation had deficit and debt levels that according to the austerians’ creed should have produced disaster.

The EU’s “Stability and Growth Pact” is an oxymoron designed by regular morons.  It is the leading cause of economic, social, and political instability in the eurozone and it caused the Second Great Recession throughout the Eurozone and Great Depression levels of unemployment in much of the periphery rather than “growth.”  The NYT’s ode to the oxymoronic Pact demonstrates again their genius at unintentional self-parody.

The third eurozone crisis is also being caused by the austerity of the same oxymoronic Pact.  Austerity has already forced Italy back into a third recession and France may well be next, particularly if austerity is made even more severe in there.  The overall eurozone has been reduced – six years after the acute phase of the global financial crisis – to stagnation by austerity.

All of this is obvious to the overwhelming majority of U.S. economists.  It is fine for NYT reporters to reject that view, but they need to acknowledge that they are doing so and explain why they maintain their unshakable faith in austerity in the face of its horrific failures and the success of fiscal stimulus (which even the IMF finally admits).  What is not acceptable for any journalist, much less the entire crew of NYT reporters covering the troika’s infliction of austerity, is to treat austerity in response to a severe recession as the only rational choice and the oxymoronic Pact as  the sure road to “Stability and Growth.”

2 responses to “EU Austerity as Frat House Hazing

  1. Is it fair to “assume” that economists understand that (in macro terms) spending = income and therefore, as a matter of mathematics, economies (GDP) are measured by spending ?

    If so, then why are policies directed to restrict spending ?

  2. It is not surprising that in a world where much of what Wall Street wants is embraced, much economic policy is a fraternity hazing. After all, as this articles shows, Wall-Street firms hire on the basis of how far prospective employees projectile vomit at fraternity parties.