Why Cannot Other European Countries Exhibit This Courage?

                The effect of the ECB coming together yesterday was rather to a greater extent than positive than I had hoped. Why? Because the determination to practise nil was non unanimous. That’s it I’m afraid, but my expectations beforehand were really low. One argue was reading this brusk speech yesteryear Jörg Asmussen, a member of the Executive Board of the ECB. (HT P O Neill) It was delivered inwards Riga, together with extols the path of internal devaluation together with austerity taken yesteryear Latvia.

                Let me quote, to give you lot the flavour. “From 2008, Republic of Latvia was faced amongst the deepest recession inwards the world. The cumulative output spend upward was 24%; unemployment peaked at 20%. Keeping the euro peg was considered yesteryear many equally a “mission impossible””. “External devaluation was presented equally the only agency forward. But Republic of Latvia did non select the slow “quick fix”. It embarked on a courageous financial consolidation path together with structural reforms. Two years later, the speed of the economical rebound is equally extraordinary equally the depth of the recession. Against all the odds, Republic of Latvia recorded a existent gross domestic product increase charge per unit of measurement of 5.5% inwards 2011.”

                An extraordinary success story: after an 18% spend upward inwards gross domestic product inwards 2009, together with apartment gross domestic product inwards 2010, nosotros straight off receive got 5.5% increase inwards 2011. But for sure I’m beingness economical amongst my quotes here. Isn’t the 5.5% increase concluding twelvemonth only the beginning, amongst the economic scheme achieving a novel dynamism. Mr. Asmussen does non furnish whatever additional evidence on this. Perhaps wisely, equally the International Monetary Fund are wrote that when increase returned, some would enjoin this proved those pessimistic Keynesians had been all wrong. I must acknowledge the ‘some’ I had inwards heed were politicians together with journalists, non senior primal bankers. By this logic, an fifty-fifty improve strategy is to unopen the whole economic scheme downwards for a year. The next twelvemonth nosotros could larn fantastic increase equally the economic scheme starts upward again.

But the actually scary affair close this spoken language is the lesson Mr. Asmussen draws from Latvia’s ‘success’. “The Baltic sense shows clearly that speed is of the essence. In all 3 Baltic countries, the regime reacted swiftly to the deterioration of populace finances together with frontloaded financial adjustment. With a budget consolidation of or together with then 9% of gross domestic product inwards 2009 alone, Latvia’s essay is unparalleled inwards Europe.” So, Republic of Ireland together with Greece, you lot know where you lot went wrong. You receive got been far likewise tentative amongst your austerity.

The linguistic communication is indicative. We receive got a “courageous financial consolidation path”, “it is improve to receive got the medicine right away than to permit the fever rising for months”, together with “Latvia’s essay is unparalleled”.  Perhaps nosotros tin depict this equally ‘masochism macroeconomics’. Or is it organized faith inwards the macroeconomic afterlife: penury (a massive waste materials of resources) today bringing virtue (austerity together with structural reform) that promises redemption (wealth creation) inwards the distant future.

So this is why I was pleased to quest heed that the ECB’s determination had non been unanimous. At last, some policymakers inwards Europe practise non believe this unsafe nonsense whatever more. 




Postscript. Mark Weisbrot at the Guardian alerts us to Christine Legarde singing from the same script, alas.