US success proves European disciples of austerity wrong
Opinion: None of the horrendous consequences predicted by hawks has come to pass
Wolfgang Schäuble: predicted disaster for the United States
We’ve been living, over the past five years, through a giant open-air experiment. Two vast economic blocs, the European Union and the United States, faced the same problem: a banking crisis had turned into a profound economic recession. But the two blocs responded in strikingly different ways. The EU decided, as Angela Merkel put it in 2010, that “all members of the euro zone have to reduce their deficit with determination and great speed” – hence the policy of slash-and-burn austerity. The head of the European Central Bank, Jean-Claude Trichet, issued the sweeping command in 2010: “Stimulate no more, it is now time for all to tighten.” The great binge had to be paid for with the great purge.
The US, on the other hand, had a mildly progressive president who went instead for a mild dose of economic stimulus. Barack Obama insisted that a deep recession was not the time to become obsessed with government deficits. It was the time to use the power of government spending to make up at least some of the fall in private economic activity. In 2009 he introduced a stimulus plan worth $831 billion, most of it spent over the following three years.
There is now real, living evidence against which to measure the sharply opposed claims of conservatives and progressives. A crucial part of that evidence is now in. Oddly enough, you have to look very hard for it in mainstream political discourse in Ireland and Europe. The experiment has shown that the claims of the deficit hawks – the ideas behind the dreadful suffering imposed on citizens in Ireland and elsewhere – are wrong.
European ‘common sense’
The people who gave Ireland and Europe a one-way ticket to austerity told us Obama was deluded. By holding and even increasing public spending in the face of the recession he would create a disaster for the US. The budget deficit would balloon. Interest rates would rise and inflation would spin out of control. The US would do immense damage to itself and drag the world economy from recession into depression. This was the overwhelming “common sense” of Europe. More than that, it was written into EU law – we were all terrified into voting for a treaty that outlaws forever what Obama was doing. Increasing deficits during an economic crisis was so obviously insane that it had to be placed beyond debate.
In 2010, Wolfgang Schäuble, the German finance minister who provided the intellectual and political muscle for this policy, predicted disaster for the US: “They have already pumped an endless amount of money into the economy via taking on extremely high public debt and through a Fed policy that has already pumped a lot of money into the economy. The results are horrendous.”