In this crisis there’s only one right answer… even if it’s the wrong one. February 26, 2013Posted by WorldbyStorm in Economy, European Politics, Irish Politics.
I’d wondered in a vague sort of a way what the response to IMF studies demonstrating that austerity wasn’t reducing debt burdens would be from the ECB et al. We know that in this state the rationale for continuing is that there is no alternative, that Ireland is uniquely unable to – for example – raise taxation further because we’re a ‘small open economy’ etc, etc (indeed Brian Hayes was making precisely that case at the weekend in the SBP). Whether one finds that entirely convincing is a different matter – not least because while income tax remains at given levels all other taxes and charges increase. And it is simply insufficient in terms of explaining what credible path to growth exists. But what of other larger states whose room might be, theoretically, greater?
Reading Paul Krugman in the Irish Times though, there is an answer to the question as to a response to IMF studies. He writes:
Given all of this, one might have expected some reconsideration and soul-searching on the part of European officials, some hints of flexibility.
One might indeed.
Instead, however, top officials have become even more insistent that austerity is the one true path.
Thus in January 2011, Olli Rehn, a vice-president of the European Commission, praised the austerity programmes of Greece, Spain and Portugal and predicted that the Greek programme would yield “lasting returns”.
Since then unemployment has soared in all three countries – but sure enough, in December 2012, Rehn published an op-ed article with the headline “Europe must stay the austerity course”.
And most crucially…
Oh, and Rehn’s response to studies showing the adverse effects of austerity are much bigger than expected was to send a letter to finance ministers and the IMF declaring that such studies were threatening to erode confidence. Which brings me back to Italy, a nation that for all its dysfunction has in fact dutifully imposed substantial austerity – and seen its economy shrink rapidly as a result.
This is surely the precise definition of adherence to ideology in the face of conclusive theoretical and practical evidence that that ideology is incorrect. It moves the economic policy response to a matter of faith. Now that may be fine for some, but my tolerance for faith based approaches of whatever stripe is very limited indeed. And particularly when they are responsible for the obvious negative outcomes that we see around us in this state and further afield.
Krugman points to a political outcome to economic policies:
Italy isn’t unique: disreputable politicians are on the rise all across southern Europe. And the reason this is happening is that respectable Europeans won’t admit that the policies they have imposed on debtors are a disastrous failure.
Certainly the response in the media is fascinating to the election this week in Italy. Put aside for a moment the point that Berlusconi,’s political longevity is something of a miracle – and I imagine a deeply unwanted one for most of us.
The line has been that only certain options are viable. Berlusconi not being one of them, Monti being acceptable and the left having question marks over it.
It has interesting ramifications too. If Berlusconi can be returned then what of others, say in Ireland. And what of the choices that remain in Italy and beyond?