Thanks in large part to the persistent efforts of anti-austerians on both sides of the atlantic, a combination of developments finally seem to turn public opinion against austerity, even in Germany:
First, the media frenzy and ridiculing of coding errors in Reinhardt & Rogoff's "Growth in a Time of Debt", a policy paper that served as the 'scientific' foundation of austerity economics, did not go unnoticed in Germany. "Monitor", one of Germany's most influential political broadcasts, covered this economic policy 'mishap' and drew attention to the fact that it cost millions of people their jobs, first in Southern Europe and now possibly in Germany due to the imploding European demand for small cars. (see also my post "Austerity....in Europe - economic incompetence or indoctrination ?)
Second, while mounting international criticism does not faze finance minister Schäuble who continues to insist on his non-sensical 'expansionary austerity' policies, the Merkel government does not like to be internationally isolated and has moderated its policy stance, allowing countries more time to attain their fiscal benchmarks.
Third, the slow realization that there aren't too many policy options left to solve the eurozone crisis, given:
a) Germany's deteriorating economic performance due to the European slump in demand for German exports;
b) the evident ineffectiveness of ECB monetary easing and the German Angst related to lower interest rates;
c) the unwillingness of German employers to allow higher wages in Germany so as to reduce imbalances in labor cost competitiveness among countries in the eurozone;
d) the unwillingness of the German government to finance a fiscal stimulus of German demand for imports from and investments in the European periphery.
Given these predicaments, a moderation of the austerity policies in the Southern European periphery seems the easy way out, especially as a quid pro quo for tougher labor market reforms as suggested by conservative commentators: "This leaves room for the new bargain between creditors and debtors. The advantage of an explicit trade-off between more aggressive reform and looser fiscal timetables is that it would at once offer a more palatable political message to voters and buy credibility in markets." (Financial Times, "The New Deal for Europe: more reform, less austerity")
However, just slowing the pace of fiscal consolidation will be too little, too late for the eurozone, already well on its way toward deflationary depression. As Paul Krugman suggests, "the obvious policy conclusion.... [that should be drawn] ....is not simply that we have too much austerity, but that right now we shouldn't be having austerity at all."
--->watch this video: El-Erian, Co-Chair of the world's largest bond fund PIMCO, says that the economy is not as good as markets imply.
What the eurozone desperately needs right now is an ambitious investment and employment creation program financed by tax revenues from the financial transaction tax (FTT) and special tax surcharges on the rich as suggested by the German Green Party. Judging from the 1-2% jump of the Greens in the opinion polls, this policy course seems widely supported by German voters. Furthermore, recent US economic history shows that well-designed and well-timed tax increases combined with other well-coordinated policy measures are very effective in raising much needed public revenues, stimulate job-creating growth AND reduce public debt at the same time.
Second, while mounting international criticism does not faze finance minister Schäuble who continues to insist on his non-sensical 'expansionary austerity' policies, the Merkel government does not like to be internationally isolated and has moderated its policy stance, allowing countries more time to attain their fiscal benchmarks.
Third, the slow realization that there aren't too many policy options left to solve the eurozone crisis, given:
a) Germany's deteriorating economic performance due to the European slump in demand for German exports;
b) the evident ineffectiveness of ECB monetary easing and the German Angst related to lower interest rates;
c) the unwillingness of German employers to allow higher wages in Germany so as to reduce imbalances in labor cost competitiveness among countries in the eurozone;
d) the unwillingness of the German government to finance a fiscal stimulus of German demand for imports from and investments in the European periphery.
Given these predicaments, a moderation of the austerity policies in the Southern European periphery seems the easy way out, especially as a quid pro quo for tougher labor market reforms as suggested by conservative commentators: "This leaves room for the new bargain between creditors and debtors. The advantage of an explicit trade-off between more aggressive reform and looser fiscal timetables is that it would at once offer a more palatable political message to voters and buy credibility in markets." (Financial Times, "The New Deal for Europe: more reform, less austerity")
However, just slowing the pace of fiscal consolidation will be too little, too late for the eurozone, already well on its way toward deflationary depression. As Paul Krugman suggests, "the obvious policy conclusion.... [that should be drawn] ....is not simply that we have too much austerity, but that right now we shouldn't be having austerity at all."
--->watch this video: El-Erian, Co-Chair of the world's largest bond fund PIMCO, says that the economy is not as good as markets imply.
What the eurozone desperately needs right now is an ambitious investment and employment creation program financed by tax revenues from the financial transaction tax (FTT) and special tax surcharges on the rich as suggested by the German Green Party. Judging from the 1-2% jump of the Greens in the opinion polls, this policy course seems widely supported by German voters. Furthermore, recent US economic history shows that well-designed and well-timed tax increases combined with other well-coordinated policy measures are very effective in raising much needed public revenues, stimulate job-creating growth AND reduce public debt at the same time.
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