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Tuesday, July 03, 2012

Sen: Austerity is Undermining Europe's Grand Vision

The Higgs boson has dominated the talk at the conference here in Germany, but -- at least among the people I've talked to -- the future of the euro is a close second:

Austerity is undermining Europe's grand vision, by Amartya Sen, Commentary, CIF: The dream of the unification of Europe goes back at least to the 15th century, but it is the nastiness of the world wars in the 20th century that established its urgent need in our time. The challenge was well described by WH Auden in early 1939: In the nightmare of the dark / All the dogs of Europe bark, / And the living nations wait, / Each sequestered in its hate.
It is important to appreciate that the movement for European unification began as a crusade for cross-border amity and political unity, combined with freer movement of people and goods. Giving priority to financial unification, with a common currency, came much later, and it has, to some extent, started to derail the original aspiration of European unity.
The so-called "rescue" packages for the troubled economies of Europe have involved insistence on draconian cuts in public services and living standards. The hardship and inequality of the process have frayed tempers in austerity-hit countries and generated resistance – and partial non-compliance – which in turn have irritated the leaders of countries offering the "rescue". The very thing that the pioneers of European unity wanted to eliminate, namely disaffection among European nations, has been fomented by these deeply divisive policies (now reflected in such rhetoric as "lazy Greeks" or "domineering Germans," depending on where you live). ...
There is no danger of a return to 1939, but it does not help Europe to have dogs barking, sequestered in resentment and contempt – if not hate. On the economic side, too, the policies have been seriously counterproductive, with falling incomes, high unemployment and disappearing services, without the expected curative effect of deficit reduction. ...
If European economic policies have been economically unsound, socially disruptive and normatively contrary to the commitments that emerged in Europe after the second world war, they have been politically naive as well. The policies have been chosen by financial leaders with little attempt to have serious public discussion on the subject.
Decision-making without public discussion – standard practice in the making of European financial policies – is not only undemocratic, but also inefficient in terms of generating reasoned practical solutions. For example, serious consideration of the kinds of institutional reforms badly needed in Europe – not just in Greece – has, in fact, been hampered, rather than aided, by the loss of clarity on the distinction between reform of bad administrative arrangements on the one hand (such as people evading taxes, government servants using favoritism, or unviably low retiring ages being preserved), and on the other, austerity in the form of ruthless cuts in public services and basic social security. The requirements for alleged financial discipline have tended to amalgamate the two in a compound package, even though any analysis of social justice would assess policies for necessary reform in an altogether different way from ruthless cuts in important public services.
The problems we are seeing in Europe today are mainly the result of policy mistakes: punishments for bad sequencing (currency unity first, political unity later); for bad economic reasoning (including ignoring Keynesian economic lessons as well as neglecting the importance of public services to European people); for authoritarian decision-making; and for persistent intellectual confusion between reform and austerity. Nothing in Europe is as important today as a clear-headed recognition of what has gone so badly wrong in implementing the grand vision of a united Europe.

    Posted by on Tuesday, July 3, 2012 at 03:06 PM in Economics, Fiscal Policy | Permalink  Comments (17)


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