Syriza’s impact on Europe: Forget what the ‘serious people’ say
Paul Krugman is apparently bemused by the comparative performances of the US and European economies. The US, allegedly the home of responsible and prudent public finances, has outperformed the EU (and especially the eurozone) by deploying spendthrift, loose budgets. And the EU, so long the haven of bloated state expenditure, has been wrecked by economic rectitude.
I suspect Krugman has his tongue firmly in his cheek. What has happened is that the US was lucky to have a pragmatic Democrat like Obama in office, able to deploy exactly the policies needed as the private debt bubble burst, deploying state expenditure to increase demand and – it becomes ever clearer – restore growth and jobs.
Meanwhile in Europe, pragmatists like Gordon Brown were swept from office, after applying a few months of similar policies, by ideologues like George Osborne whose instinct was always to shrink the state either to deliver an ideological agenda or, and this is surely much less likely, because he actually believed balanced budgets were the right answer to a recession.
In Germany, where domestic demand had been artificially suppressed by labour market reforms in the first decade of the 21st century leading to as many Germans on poverty wages as in the UK and US, inflation was identified as the number one risk just as deflationary pressures began to build.
The IMF, with the disgraced Strauss-Kahn replaced by French lawyer Lagarde, was the cheer-leader for slamming on the brakes around the G20 until the economic evidence mounted up and forced admissions that the advice given had been catastrophic, especially in Greece (although catastrophic is my description rather than the IMF’s!)
The US’ performance has been relatively lacklustre over the past five years – though still better than Europe’s – because Obama was forced by Republicans and economic orthodoxy in his own party to limit the expansionary expenditure and turn off the taps too early. In Europe, by contrast, and in Greece in particular, economic orthodoxy led to austerity, balanced budgets, and deflationary pressure at exactly the wrong time, leaving Northern European economies sluggish, Southern Europe blighted by unacceptable levels of unemployment especially among the young, and falling living standards for most people everywhere.
Enter Syriza’s new leftist government, described, with various degrees of panic in the media and political classes as ideology-fuelled class warriors determined to mount the barricades and plunge Europe into yet another crisis. Except that what Syriza is proposing is actually sensible enough to secure the support of Financial Times columnists, many economists, and trade unions across the alleged North-South divide. Could this be because, far from being ideologues, the people determining Syriza’s economic policies are actually practical economists with years of study under their belt about how real economies function.
Far from being a youthful rebellion against authority – although as Paul Mason suggests, that is certainly true of many of their voters – Syriza’s economic policy suggests that, at last, one European economy has grown ups in charge.