"The economy has been hovering too long near stagnation, economists warned at an economics conference here on Sunday, saying that unless the government in Paris pushed more strenuously to improve growth alongside Germany, its performance threatened to weigh on the prospects for a wider recovery in the euro zone."
OK, so how would Paris "improve growth?" The conference was supposed to create this agenda.
"[T]op European policy makers and economists addressed what has become the most urgent concern about Europe: that for all the steps taken to put crisis-stricken countries on a path toward renewed growth, the recovery is still unfolding much too slowly."
It would be helpful for the reader to know the nature of "all the steps taken to put crisis-stricken countries on a path toward renewed growth." In prior columns I have explained why I believe that the troika's (the EU Commission, the ECB, and the IMF) "steps" (austerity and slashing wages) have been the greatest impediments to "renewed growth."
A Side Note about Why Germany can never be a Model of Recovery for the Eurozone
A nation can run a budgetary surplus in response to a recession and still grow if it is a very large net exporter -- as is Germany. Germany positioned itself to be a very large net exporter a decade ago by reducing workers' wages. Germany's response to the plight of the periphery is: we took the bitter medicine and things are generally OK for us -- you should do the same. That response, however, is untenable. First, we cannot all be net-exporters. My exports are your imports and if we all try to net exporters (1) we cannot succeed and (2) the result is a destructive neo-mercantilism race to the bottom that will crush European wages. Second, Germany's success as a net exporter makes it much harder -- not easier -- for the periphery to emulate its strategy because it is pretty close to a zero sum competition. Third, Germany's greater productivity means that nations of the periphery that try to follow its net-export model would have to inflict far greater reductions in workers' pay to compete. This would set off a race to the bottom among nations of the periphery to cut wages. Inequality, which is already surging in the EU, would explode. I call this dynamic the "Road to Bangladesh" strategy. It explains why German corporations are the greatest proponents of austerity.
The NYT Misses the EU Politics that Consumed the Conference Attendees
I return to the NYT's coverage of the conference that was supposed to address what policies the troika should adopt to prevent the eurozone's "lost decade" from becoming the "lost quarter-century." Recall that the context of the conference was the realization that several core nations, particularly France, are on the verge of being forced back into recession by austerity. France is a big problem because it is big (the EU's second largest economy and a large population) and because for decades it served as the fig leaf (barely) masking Germany's rule over the EU. As France's economy stagnates Merkel has moved ever more openly to rule the EU, which already poses political problems and may unravel the EU.
"'The weakness of France is visible,' Bertrand Badre, managing director and chief financial officer of the World Bank Group in Washington, said in an interview on the sidelines of the conference. 'It's not that France and Germany should dominate,' he added, 'but if we can't find a way together it might be an issue.'"
German dominance is far more than "an issue" in the periphery where that domination is often seen as throwing their nations into economic catastrophe for the benefit of German banks and corporations. The Germans and their closest Germanic allies also have an atrocious record of insulting the victims of austerity. If Germany throws the French under the bus and the Brits exit the EU the nakedness of German hegemony over the EU will be stark and it will gall more than the Gauls.
Even the IMF Knows that Austerity is Self-Destructive
IMF head Christine Lagarde explained that the IMF was cutting its growth forecasts for the EU. She explained that inadequate demand leads to inadequate production and investment -- and that austerity made this worse.
"Investment in Europe is about 20 percent lower than it was before the crisis unspooled, while public investment -- especially along Europe's southern rim -- has been sharply tightened because of budget constraints."
Yes, austerity further weakens already inadequate demand, consumption, production, and investment.
Austerity Reduces Future Growth by Harming the Infrastructure
The article reports that the conferees also understood that austerity was harming the infrastructure. The context of this admission demonstrates that they knew that this would impair future growth and competitiveness.
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
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