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Elections Could Shift EU Away From Austerity, but Should They?

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Posted on May 8, 2012
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By William Pfaff

PARIS—The weekend elections in France and Greece seem widely to have been taken, at least on the European and American left, as a solution to the great European economic crisis.

The Greeks will hold another election, which a leftist coalition may (or may not) win. A masterful Francois Hollande will unveil his plan to tame Angela Merkel and the European Central Bank, and reinstall growth in Europe and terminate sacrifice through pan-European infrastructure building, just as soon as the June legislative elections are over and Socialism rules, while Marine Le Pen—as planned—dominates the scattered and demoralized remnants of the French center and moderate right.

“Time is clearly running out for the strategy of recovery through austerity,” Paul Krugman of The New York Times writes. He has won his argument against austerity, in France at least, and would that this were so everywhere. But there still are Germany and Merkel to confront, and the 25 other European Union countries already signed up for austerity and still more of it. Moreover, the French were not reading Krugman when they voted; they were not voting on economic theory but voting their anger at Nicolas Sarkozy, and their nostalgia for the good old days before Wall Street greed, folly and malfeasance wrecked the world economy.

In Europe, the effect is much like that in 2005, when France and the Netherlands voted against the proposed European constitution that the EU majority had believed that Europe needed, and had commissioned Valery Giscard d’Estaing to draft for them. Then, as now, the rule was unanimity, and the EU Commission and Council were appalled to have the constitution rejected by Giscard’s own French compatriots and by the Dutch, founding members of the EU.

What to do now? Then, as now, the crisis was surmounted and the problem was recognized as one in which the ideology of European unification had overreached political good sense and been rejected.


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The same generous and ambitious error of overreaching is also at the root of what now has happened in Europe. The alluring idea of a common currency, cementing the economic progress made with the European Common Market, darkened the prudential imagination of Europe’s leaders, and produced the euro—Europe’s common currency (with aesthetically wretched bills by comparison with most of the European currencies it replaced!).

The common currency lacked the three elements that could support it: commonly managed European economies, budgets and fiscal policies (and to add a fourth absent quality, a sensitivity to history, which would have told them that previous European monetary unions, of which there have been several more limited ones, have failed for lack of those elements).

The advantages of the euro have been enormous, banishing currency speculation and saving trillions to the banks and financial institutions of Western Europe and those who deal with Europe. But the common currency has robbed Europe’s weaker economies of the flexibility that their own monies gave them. If Greece, Spain and Italy had been able to adjust the values of their currencies against the major ones, the dollar, deutsche mark, Swiss and French francs, all would have been well. Those countries would have retained their export competitively and indeed might have gained against the dollar, weakened by American deficits, despite that printing machine in the Treasury’s basement.

Germany would have saved its D-mark, which psychologically speaking, is what all of this has been about in Germany—no repetition of the Great Inflation of the 1920s! The deutsche mark, if it had not been replaced by the euro, would dominate Europe’s monies today, and Germany’s manufacturers would still have prospered, but not as much as they actually have done recently, since the Europeans (and others) buying German goods would have been paying in francs, lira and pesetas, which, like sterling and the dollar, would have fallen in value since the great credit crisis began. But these customers would nonetheless have been buying because they could afford to do so.

(An incidental remark: Is it not possible that some savant could invent—or reinvent—a system for the eurozone where a constant euro would nominally exist as an accounting unit against which individual currencies in the zone could float? Wasn’t the “snake” and ecu system something like this?)

Returning to the United States, whence the Great Credit Crisis came, the current debate is ideological, to be sure—neo-Keynesian (Krugmanism, shall we say) versus monetarism and the theory, born in the Austro-American academy, of a market economy in which an Invisible Hand corrects economic errors, with dispassionate indifference to the crooked stuff of which humanity is reputedly made, even capitalist humanity. In this perspective, Republicans say it needs only to fix certain structural problems that have unaccountably arisen in the globalized economy, the inconveniences of which the poor and middle classes will have to put up with (after all, we are doing it for them, aren’t we?).

The answer to the crisis is to cut spending on schools, health, welfare programs (American tea partyers would add, “for people who don’t deserve them and whine about it”), while properly rewarding the business executives who have made our nation great. The Germans have been attacking a real problem of profligacy in certain euro economies. They haven’t made it work, but it’s not crank theory.

Visit William Pfaff’s website for more on his latest book, “The Irony of Manifest Destiny: The Tragedy of America’s Foreign Policy” (Walker & Co., $25), at

© 2012 Tribune Media Services, Inc.

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By Marian Griffith, May 10, 2012 at 1:14 am Link to this comment
(Unregistered commenter)

To answer mr.Pfaff’s question ‘Should the European countries abandon the austerity religion?’ the answer is yes they should. But it is a qualified yes.
Simply pour the trillions (which are called billions in europe) out of the state treasury into the banks is not going to work. It is not doing so well for the USA either. Even though in the short term it may create a semblance of recovery, it does so by inflating the debt and thus causing worse problems down the line. If not for the sheer size of the USA economy and the fact that nobody really can speculate against the dollar the country would be flirting with hyperinflation already. The scizophrenia of simultaniously speculating against the weakness of the Euro and keeping it the strongest currency in the world should be another warning sign (or wake-up call).

Europe is currently blindly copying the USA financial policy. Which is not surprising seeing that they just elected as head of its central bank a faithfull disciple of the Church and Teachings of Friedman as written down by his arch-angels of Goldman-Sachs and BoA.
It clearly is not working. One by one the countries are being dragged back into the quagmire of recession which serves nobody but the banks that make out like the bandits they are no matter what (but more so if they can suck out the last bit of cash out of the desperate European governments).
This whole crisis is as much about a recession as it is about breaking the back of the Eurozone just when it started to become a threat to the almighty investment banks in the USA and their counterparts in the London City.

So austerity is not going to work. It just sucks all money out of the economy making everybody poorer and less able to meet their obligations.
Running the money printing press is not going to work either.
And while in the 1930s putting lots of people to digging ditches and building dams worked, that kind of employment is no longer going to work because there is insufficient demand for low qualified work. That is in fact one of the major problems of the Eurozone, that they have outsourced much of their industry and thus insufficient jobs for people without higher education. In fact there is no one solution for the entire eurozone as each country has different problems.
A solution has to be found for each country, but along the lines of creating self-sustaining industry and employment. Austerity is needed in certain situations where the country is systematically living beyond its means, but again it has to be applied intelligently and not by buldozering over the populaiton.

And no Mr.Pfaff. The primary reason to go ahead with the Euro is because its predecessor, the ECU, was a speculator’s dream. The rules of that system would force countries to behave in predicatble ways that were detrimental to the country but profitable to investment bankers with deep enough pockets to force them. Mr.Soros, of leftist fame, made his trillions by forcing a couple of european countries into a recession which he could do because he knew exactly what those countries would do and when.
The problems of the Euro are severe but the solution is not in abandoning it. Germany subsidised southern Europe so it could keep buying stuff (same as China is doing for the USA) and it will have to stop. The loans already extended pretty much have to be written off along with true social and political reforms in those countries.

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By Daniele Colajacomo, May 9, 2012 at 7:06 pm Link to this comment
(Unregistered commenter)

“The weekend elections in France and Greece seem widely to have been taken, at least on the European and American left, as a solution to the great European economic crisis.”

This - like most of the rest of this article insulting the intelligence and political as well as economic education of truthdig’s readers - is a completely misguided and purposefully deceiving statement.

The vote is widely understood not as the proposal of a solution, but as a rejection of economic policies based on exploitation of the poor to the better the lives of the rich and super rich, which have failed for decades in every single country they have been attempted (usually with the help of the local dictator, his special forces and a handful of Chicago School of Economics fanatics.

Fortunately, for the time being, Europe is still operating under democratic institutions, and rejecting the fear mongering tactics that flow so well from the author as well as those who stand to benefit from further exploitation.

If the sky will fall, it will fall on the rich. The rest of us have nothing much to lose, except our safety, which facts show is almost exclusively endangered by state security and surveillance forces, not by terrorists (not to take away from the dangers of terrorism, but it doesn’t compare with the death and destruction brought upon millions by the pathological addicts which are controlling them because of their own paranoia about being left with “less” instead of “more”).

If the author wants to be debated seriously, he should quote facts, successful stories where nations have benefited during a recession from draconian austerity measures.

Until he fails to propose an opinion based on facts instead of sound bites or political ideology, then he should refrain from dirtying up the pages of an otherwise admirable publication.

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By Blueokie, May 9, 2012 at 8:16 am Link to this comment

Wow, Pfaff’s normal mangling of history or economics is at least humorous in its sophomoric attempts to prove his point, which is impossible to see if he’s wearing a hat, but this steaming pile of dung is beyond the pale.  Is there no editing at truthdig anymore?  This is actually a featured column?  This kind of bullshit, along
with the constant glorification of neo-con, corporatist, Constitution shredding, war criminal, Obamabush is making this site less relevant on a daily basis.

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prisnersdilema's avatar

By prisnersdilema, May 9, 2012 at 6:52 am Link to this comment

Murdering Democracy in Europe, was never the intent of the EU… or was it?

Nonetheless, that seems to be the intent of Goldman Sachs. Murder Democracy,
create poverty, debt slavery and avoid prosecution, by buying off the political
class….A strategy that seems to be working in the United States…..

Maybe it won’t succeed in the EU, because Europe lacks a large percentage of
the population who are afflicted with religious delusions, and masochistically
need to punish themselves, and deny everyone else any pleasure in life,
because of their belief that fun should only happen after your dead. 

But ask yourself the question why should Europeans die in the streets of
starvation, so that Goldman Sachs can avoid judgment day on its derivatives?

On the other hand, we can’t afford schools, and social security, decent wages,
and affordable mortgages, because our financial class needs gluttonous profits
and wealth for irrational reasons of their own. The wealthy have always been
self indulgent, they can afford it.

The right realized long ago that they can capitalize on vast numbers of
American’s suffering from The God disease, who enjoy the middle ages, almost
as much as living in a fairy tale, no matter how Grimm it might be.

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By jrundin, May 8, 2012 at 10:59 pm Link to this comment

“The answer to the crisis is to cut spending on schools, health, welfare programs (American tea partyers would add, “for people who don’t deserve them and whine about it”), while properly rewarding the business executives who have made our nation great.”

I’m hoping this is meant to be ironic. If so, it has not been sufficiently signposted to be so. It left me confused as to your real thoughts.

If it’s not ironic, well, then…

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THX 1133 is not in the movie...'s avatar

By THX 1133 is not in the movie..., May 8, 2012 at 10:03 pm Link to this comment

Elections Could Shift EU Away From Austerity, but
Should They?
According to the economists I respect
(Krugman/Reich/Stiglitz; to name three) the answer is
yes. I think Rubini is also in agreement.
Austerity is being mis-applied and abused; making the
victims pay for the fiscal
irresponsibility/criminality of the elites.
Beware the hero who comes to save us; fascism can’t
be far behind.

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By diamond, May 8, 2012 at 7:11 pm Link to this comment

“Go fuck yourself Pfaff, blithering idiot. If Latin America had taken his advice long ago it would remain a wasteland and no one would be talking about Brazil.”

Harsh, Robespierre. Way harsh. Pfaff happens to be correct in his assessment and the only people who don’t agree are neo-liberal, blithering idiots. The fact is, everyone knows austerity doesn’t work but it is extremely handy for dismantling the welfare state and that is its main purpose in the IMF’s dead hand presently falling across Europe. The IMF has already murdered many third world states using exactly this formula of debt, devastation and dismantling.

Austerity simply freezes the economy and kills investment and employment stone dead. The people, the masses whatever term you want to use, are far more sensible than the clowns who think Friedman’s mathematical equations based on a nonsensical concept of a perfectly functioning market that operates with godlike perfection and never gets it wrong -ever- are the one and only acceptable economic dogma. It’s not an economic theory to these people, it’s a religion and the market is their god.

Global Food Scheme Starves Guatemalan Poor
2nd June 2011

“Due to predatory trade policies endorsed by the IMF and the Guatemalan government, tax-evading transnational corporations partnered with local elites make a killing off the country’s agricultural exports while more than half of its 14 million people suffer extreme poverty and threats of violence.

Decades ago, Guatemalan farmers produced enough grain to feed themselves, but a 1980s IMF-led trade program forced them to abandon staple foods in favor of crops in demand on the international market, promising that the arrangement would enable the country to pay off its heavy national debt. Once those crops leave the hands of Guatemalans, however, international traders raise the prices, and taxes on export revenues are not high enough to pay off the country’s outstanding charges. Meanwhile, the average Guatemalan laborer endures a permanent state of debt and servitude, working with highly toxic chemicals for roughly $190 a month, 80% of which goes toward paying international prices for imported foods. —ARK

“Guatemala is a prime example, according to a report by Oxfam, of how the global food system is failing. The organisation predicts that the average price of staple foods will double by 2030. “Spiralling food prices, climate chaos, rising demand on top of a collapsing resource base, and markets rigged against the many in favour of the few” are, the charity warns, taking us into a new era of crisis in which more and more people are going hungry.”

This is the plan and you would have to be a fucking idiot of incredible intellectual deficiency to believe it makes any kind of sense. The neo-liberals always claim they just need more time and more perfect austerity to re-invent the wheel but the problem is the wheel is crooked and outmoded and the car can’t move.

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By Robespierre115, May 8, 2012 at 6:42 pm Link to this comment

Go fuck yourself Pfaff, blithering idiot. If Latin America had taken his advice long ago it would remain a wasteland and no one would be talking about Brazil.

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By balkas, May 8, 2012 at 5:58 pm Link to this comment

it’s my bed time. i am going to reread this piece but much slower. i’ve
read it too quickly in order to offer an agreeing or nonagreeing
i usually hate reading anything about finances.

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By Jeff N., May 8, 2012 at 5:40 pm Link to this comment

Uhh what?  This reads like sloppy drunken rambling.. Are we talking about currency valuations here, French elections, Paul Krugman, Republicans, what? Is the last paragraph supposed to be sarcastic?  Put down the booze, hire a decent editor and give me a coherent article next time buddy.

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