“What about austerity? Spain did a lot of tightening in the first few years of the euro crisis, but not much since then: [CHART] […]
The question then is, does this constitute any kind of vindication of either the euro or the austerity regime? As you might guess, I’d say that the answer is a clear no. Yes, adjustment can take place even with a single currency; but it’s a very slow and painful process. Yes, growth can resume once you stop imposing ever-harsher austerity; also, if you repeatedly hit yourself on the head with a baseball bat, you will feel better when you stop.
What is true is that the single currency isn’t totally unworkable. It’s just extremely costly.”
“One of the big lessons of the euro crisis has been that Milton Friedman was right — not about monetarism, but about the case for flexible exchange rates. When big adjustments in a country’s wages and prices relative to trading partners are necessary, it’s much easier to achieve these adjustments via currency depreciation than via relative deflation — which is one main reason there have been such big costs to the euro. […]
If you look at employment instead, as in the chart, Iceland did far better than Ireland; and Icelandic unemployment similarly shows a much more favorable picture. Less formally, everyone I know who tracked both countries has the sense that the human toll in Iceland was much less than it was in Ireland.
Oh, and if you remember, everyone expected the Icelandic crisis to be much worse, given the incredible scale of the banking overreach […].
I guess I understand the urge to make excuses for the single currency. But the evidence really does suggest that there are important advantages to keeping your own currency.”
“Let’s look at what passes for success in Spain, which has, somewhat incredibly, been elevated as a role model: [Chart]
We see an awesome slump that leaves Spain far below its pre-crisis level of output, and even further below its pre-crisis trend, followed by an upturn that, even if it continues at the current pace, will take many years to recover the lost ground.”
[Poland is] also a country with relatively low productivity by northwestern European standards, indeed lower productivity than Greece by standard international measures: [Chart]
But Poland has not had a Greek-style crisis, or indeed any crisis at all. Instead, it has powered through the turmoil of recent years: [Chart]
What’s the difference? The main answer, surely, is the euro: by adopting the euro Greece first brought on massive capital inflows, then found itself in a trap, unable to achieve the needed real devaluation without incredibly costly deflation.”
“The chart shows real GDP per working-age adult (15-64) in France, Japan, and America since 1990. […]
What’s striking here is how similar the three look. Japan lagged in the late 1990s and early 2000s, but recovered. France has lagged since 2010, largely thanks to the eurozone crisis and its misguided austerity policies. But given how much rhetoric there is about structural problems here and there, what’s striking is how little divergence there has been among advanced countries.
What this tells you, I think, isn’t just that international competition is far less important than legend has it. It also suggests that economic growth is pretty insensitive to policy: France and the US are at the extremes of advanced-country regimes, yet there’s not much difference in their long-term performance. […]
[…] there really is the question of who gets the gains. U.S. economic growth has been OK these past 25 years; US family incomes, not so much, because such a large share of growth goes to the very top.
International competition is a mostly bogus notion; class warfare is very, very real.”
“None of this makes sense even from the perspective of the creditors. It’s like a 19th-century debtors’ prison. Just as imprisoned debtors could not make the income to repay, the deepening depression in Greece will make it less and less able to repay. […]
I believe strongly that the policies being imposed will not work, that they will result in depression without end, unacceptable levels of unemployment and ever growing inequality. But I also believe strongly in democratic processes—that the way to achieve whatever framework one thinks is good for the economy is through persuasion, not compulsion. The force of ideas is so much against what is being inflicted on and demanded of Greece. Austerity is contractionary; inclusive capitalism—the antithesis of what the troika is creating—is the only way to create shared and sustainable prosperity.
For now, the Greek government has capitulated. Perhaps, as the lost half decade becomes the lost decade, as the politics get uglier, as the evidence mounts that these policies have failed, the troika will come to its senses. Greece needs debt restructuring, better structural reforms and more reasonable primary budget surplus targets. More likely than not, though, the troika will do what it has done for the last five years: Blame the victim.”
“Indeed, the European institutions led by Germany seem to have decided that waging an ideological battle against a recalcitrant and amateurish far-left government in Greece should take precedence over 60 years of European consensus built painstakingly by leaders across the political spectrum.
By imposing a further socially regressive fiscal adjustment, the recent agreement confirmed fears on the left that the European Union could choose to impose a particular brand of neoliberal conservatism by any means necessary. In practice, it used what amounted to an economic embargo—far more brutal than the sanctions regime imposed on Russia since its annexation of Crimea—to provoke either regime change or capitulation in Greece. It has succeeded in obtaining capitulation. […]
In essence, Germany established that some democracies are more equal than others.”