Austerity On The Run
I wanted to flag this before it became too much Old News. Andrew Sullivan, still a self-described conservative and a tireless deficit hawk, has looked to the events in Europe and concluded that austerity — at least for the time being and in a democratic context — simply doesn’t work:
I don’t like this conclusion. I start from the belief that government should run surpluses in good times so that they can have some fiscal lee-way for stimulus in bad times. Readers know I deeply oppose government debt outside of structural investment, i.e. unsustainable entitlements and unsustainable empire. But if premature or excessive austerity actually deepens debt, as seems to be happening in Europe, then the equation changes.
I guess what I’m saying is that if this US election is fought around amnesiac discontent at an incumbent during tough economic times, then Obama will lose. Which is why Romney’s strategy appears to be entirely that argument. But if the choice is between drastic European-style austerity on Romney lines, with the burden carried primarily by the poor and working poor, and Obama’s emphasis on more long-term structural cost-cutting, infrastructure investment and more revenue from the rich now, then the equation shifts.
I may be wrong, and it doesn’t thrill me, but my bet is that the West is moving leftwards for pragmatic reasons. And that America will not be immune. Pendulums swing, and the long free market period of 1979 – 2007 is giving way to a more government-based management of the unintended consequences of the right’s initial success and subsequent over-reach.
Providing some hard news proof of Sullivan’s theory is a new story in the New York Times about Germany’s PM, Angela Merkel. More than any other individual, Merkel is the face of austerity today; and as the Times notes, after more or less three years of calling the eurozone’s shots, it’s increasingly looking like she soon may find herself the odd-woman-out at EU sovereign pow-wows:
With political allies weakened or ousted, Chancellor Angela Merkel’s seat at the head of the European table has become much less comfortable, as a reckoning with Germany’s insistence on lock-step austerity appears to have begun.
“The formula is not working, and everyone is now talking about whether austerity is the only solution,” said Jordi Vaquer i Fanés, a political scientist and director of the Barcelona Center for International Affairs in Spain. “Does this mean that Merkel has lost completely? No. But it does mean that the very nature of the debate about the euro-zone crisis is changing.”
A German-inspired austerity regimen agreed to just last month as the long-term solution to Europe’s sovereign debt crisis has come under increasing strain from the growing pressures of slowing economies, gyrating financial markets and a series of electoral setbacks.
Spain officially slipped back into recession for the second time in three years on Monday, after following the German remedy of deep retrenchment in public outlays, joining Italy, Belgium, the Netherlands and the Czech Republic. In the Netherlands, Prime Minister Mark Rutte handed his resignation to Queen Beatrix on Monday after his government failed to pass new austerity measures over the weekend.
The political upheaval drove stock markets on the Continent sharply lower, with Germany’s DAX index finishing the day down 3.4 percent. The sell-off in Europe dragged American indexes down around 1 percent. A survey of European purchasing managers showed an unexpected plunge in confidence this month.
The Netherlands, a staunch supporter of the German position, became the latest European country forced into early elections by the European crisis, just one day after the first round of presidential voting in France raised the possibility that the incumbent, Nicolas Sarkozy, would be unseated by his Socialist challenger, François Hollande, in a runoff election.
As the Times goes on to note, this doesn’t mean that austerity, like war, is over. But it does mean that a strain of conventional wisdom that has had a vice-like grip on Western elites for decades may finally be reaching its end. It’s little consolation to the more than 50% of Spanish youth searching for work; but it’s a decent harbinger for the future. And for Europe today, that’s no small thing.