Excellent article in the Guardian this morning by Joschka Fische, German Foreign Minister and Vice Chancellor of Germany from 1998 to 2005.
Not long ago, German politicians and journalists confidently declared that the euro crisis was over; Germany and the European Union, they believed, had weathered the storm. Today, we know that this was just another mistake in a continuing crisis. The latest error, as with most of the earlier ones, stemmed from wishful thinking – and, once again, it is Greece that has broken the reverie.
Even before the leftist Syriza party’s overwhelming victory in the recent Greek election it was obvious that, far from being over, the crisis was threatening to worsen. Austerity – the policy of saving your way out of a demand shortfall – simply does not work. In a shrinking economy, a country’s debt-to-GDP ratio rises rather than falls, and Europe’s recession-ridden crisis countries have now saved themselves into a depression, resulting in mass unemployment, alarming levels of poverty and scant hope.
The depressing thing about all this is that the Eurozone seems committed to repeating the mistakes of the past and painfully relearning the lessons through a costly process of trial and error, in the process ruining the lives of millions of people.
Here is John Maynard Keynes writing to Franklin D. Roosevelt in 1933.
You are engaged on a double task, Recovery and Reform;–recovery from the slump and the passage of those business and social reforms which are long overdue. For the first, speed and quick results are essential. The second may be urgent too; but haste will be injurious, and wisdom of long-range purpose is more necessary than immediate achievement.
On the other hand, even wise and necessary Reform may, in some respects, impede and complicate Recovery. For it will upset the confidence of the business world and weaken their existing motives to action, before you have had time to put other motives in their place.
The object of recovery is to increase the national output and put more men to work. In the economic system of the modern world, output is primarily produced for sale; and the volume of output depends on the amount of purchasing power, compared with the prime cost of production, which is expected to come n the market. Broadly speaking, therefore, an increase of output depends on the amount of purchasing power, compared with the prime cost of production, which is expected to come on the market. Broadly speaking, therefore, an increase of output cannot occur unless by the operation of one or other of three factors. Individuals must be induced to spend more out o their existing incomes; or the business world must be induced, either by increased confidence in the prospects or by a lower rate of interest, to create additional current incomes in the hands of their employees, which is what happens when either the working or the fixed capital of the country is being increased; or public authority must be called in aid to create additional current incomes through the expenditure of borrowed or printed money. In bad times the first factor cannot be expected to work on a sufficient scale. The second factor will come in as the second wave of attack on the slump after the tide has been turned by the expenditures of public authority. It is, therefore, only from the third factor that we can expect the initial major impulse.
So to sum up. Nobody recovers when you are standing on their neck.
Yes, nice, and Yanis Varoufakis was so very clear & good on television last, highlighting & shutting up Kirsty Walk’s routine impatient (standard BBC’s) simplistic aggression towards anything progressively radical.
http://www.bbc.co.uk/iplayer/episode/b0512kdk/newsnight-30012015
I watched the same interview and was appalled at both the inaccurate and simplistic intro piece and also by Emily Maitlis’s rudeness. Its as if TV interviews seem to think that their job is cross examine people and trip them up rather than getting them to accurately explain their position. When Maitlis kept trying to elicit simple Yes/No answers to complex questions I felt like shouting at the TV.
Yanis Varoufakis has posted a comment about that interview on his blog
http://yanisvaroufakis.eu/2015/01/31/on-bbc-tv-newsnight/
Just another quick comment. Yes Syriza are progressive and radical but in fact all they proposing are the sort of moderate Keynesian polices that centre left and centre right parties happily implemented across Europe in the past. It’s pretty simple: you don’t deflate in a depression, and you don’t try to get a country to pay off it’s debts by shrinking it’s economy. It shows how out of kilter the debate around economic policy in the EU has become when such ideas are viewed as radical.
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