Re: [Pen-l] PK on Europe

["Anthony D'Costa" <promothesdcosta@xxxxxxxxx>]

I think muddling through.  Most states do that, individual leadership
notwithstanding.  I think in trying to get everyone domestically on
the same page is difficult, let alone internationally.  But many
European states do spend money on welfare and lots of it so I wonder
if individually they have their stimulus plan adequately at the
national level shouldn't it work out for the union?  Maybe I am not
reading much the local European news but any news from the US is
always grim these days.

Anthony

On Mon, Mar 16, 2009 at 4:37 PM, Jim Devine <jdevine03@xxxxxxxxx> wrote:
> does this mean that Europe may be moving toward breaking up? or toward
> increased centralism? or toward muddling through, i.e., persistent
> deflation and depression?
>
> New York TIMES / March 16, 2009
> Op-Ed Columnist
> A Continent Adrift
> By PAUL KRUGMAN
>
> MADRID
>
> I’m concerned about Europe. Actually, I’m concerned about the whole
> world — there are no safe havens from the global economic storm. But
> the situation in Europe worries me even more than the situation in
> America.
>
> Just to be clear, I’m not about to rehash the standard American
> complaint that Europe’s taxes are too high and its benefits too
> generous. Big welfare states aren’t the cause of Europe’s current
> crisis. In fact, as I’ll explain shortly, they’re actually a
> mitigating factor.
>
> The clear and present danger to Europe right now comes from a
> different direction — the continent’s failure to respond effectively
> to the financial crisis.
>
> Europe has fallen short in terms of both fiscal and monetary policy:
> it’s facing at least as severe a slump as the United States, yet it’s
> doing far less to combat the downturn.
>
> On the fiscal side, the comparison with the United States is striking.
> Many economists, myself included, have argued that the Obama
> administration’s stimulus plan is too small, given the depth of the
> crisis. But America’s actions dwarf anything the Europeans are doing.
>
> The difference in monetary policy is equally striking. The European
> Central Bank has been far less proactive than the Federal Reserve; it
> has been slow to cut interest rates (it actually raised rates last
> July), and it has shied away from any strong measures to unfreeze
> credit markets.
>
> The only thing working in Europe’s favor is the very thing for which
> it takes the most criticism — the size and generosity of its welfare
> states, which are cushioning the impact of the economic slump.
>
> This is no small matter. Guaranteed health insurance and generous
> unemployment benefits ensure that, at least so far, there isn’t as
> much sheer human suffering in Europe as there is in America. And these
> programs will also help sustain spending in the slump.
>
> But such “automatic stabilizers” are no substitute for positive action.
>
> Why is Europe falling short? Poor leadership is part of the story.
> European banking officials, who completely missed the depth of the
> crisis, still seem weirdly complacent. And to hear anything in America
> comparable to the know-nothing diatribes of Germany’s finance minister
> you have to listen to, well, Republicans.
>
> But there’s a deeper problem: Europe’s economic and monetary
> integration has run too far ahead of its political institutions. The
> economies of Europe’s many nations are almost as tightly linked as the
> economies of America’s many states — and most of Europe shares a
> common currency. But unlike America, Europe doesn’t have the kind of
> continentwide institutions needed to deal with a continentwide crisis.
>
> This is a major reason for the lack of fiscal action: there’s no
> government in a position to take responsibility for the European
> economy as a whole. What Europe has, instead, are national
> governments, each of which is reluctant to run up large debts to
> finance a stimulus that will convey many if not most of its benefits
> to voters in other countries.
>
> You might expect monetary policy to be more forceful. After all, while
> there isn’t a European government, there is a European Central Bank.
> But the E.C.B. isn’t like the Fed, which can afford to be adventurous
> because it’s backed by a unitary national government — a government
> that has already moved to share the risks of the Fed’s boldness, and
> will surely cover the Fed’s losses if its efforts to unfreeze
> financial markets go bad. The E.C.B., which must answer to 16
> often-quarreling governments, can’t count on the same level of
> support.
>
> Europe, in other words, is turning out to be structurally weak in a
> time of crisis.
>
> The biggest question is what will happen to those European economies
> that boomed in the easy-money environment of a few years ago, Spain in
> particular.
>
> For much of the past decade Spain was Europe’s Florida, its economy
> buoyed by a huge speculative housing boom. As in Florida, boom has now
> turned to bust. Now Spain needs to find new sources of income and
> employment to replace the lost jobs in construction.
>
> In the past, Spain would have sought improved competitiveness by
> devaluing its currency. But now it’s on the euro — and the only way
> forward seems to be a grinding process of wage cuts. This process
> would have been difficult in the best of times; it will be almost
> inconceivably painful if, as seems all too likely, the European
> economy as a whole is depressed and tending toward deflation for years
> to come.
>
> Does all this mean that Europe was wrong to let itself become so
> tightly integrated? Does it mean, in particular, that the creation of
> the euro was a mistake? Maybe.
>
> But Europe can still prove the skeptics wrong, if its politicians
> start showing more leadership. Will they?
> --
> Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
> way and let people talk.) -- Karl, paraphrasing Dante.
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Anthony P. D'Costa
Professor of Indian Studies and Research Director
Asia Research Centre
Copenhagen Business School
Porcelænshaven 24, 3
DK-2000 Frederiksberg, Denmark
Email:ad.int@xxxxxx
Ph: +45 3815 2572
Fax: +45 3815 2500
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