"The central issue is that Mr. Draghi and the E.C.B. see Europe as being on the cusp of a triple-dip recession. Europe is also at risk of getting stuck in a cycle of very low inflation and stagnant growth. Inasmuch as it has already cut short-term interest rates to zero (below zero, even), the bank is considering doing an American-style program of quantitative easing, or buying vast sums of bonds with newly created euros, to try to avert this fate. It is also encouraging Germany and other European nations to loosen the purse strings a bit and pursue fiscal policy that is more supportive of growth."
A little context here: from my perspective Draghi has been a big part of the problem as a member of the troika. I also have no faith in QE as an answer to a Great Recession. But it is true that in the valley of macroeconomically blind that the troika have been trampling under their hooves, Draghi has begun to emerge as the one-eyed king. (In fairness to Christine Lagarde, the head of the IMF, she emerged years ago as the troika's one-eyed queen.)
Irwin makes the key point that Paul Krugman, we, and many others have been emphasizing for years. There is an overwhelming consensus among economists that Germany's policies represent economic malpractice. Most political scientists also see Germany's insistence on inflicting austerity on the eurozone and its war against workers' wages as the gravest threat to EU stability.
"It's worth adding that most everybody on this side of the Atlantic, the International Monetary Fund and the United States government, for example, is on Team Draghi in this dispute. Indeed, the widespread view among economists in the United States and Britain is that the risks facing Europe are grave and that the need for easing both monetary and fiscal policy is urgent."
The IMF is the third member of the troika that has led the twin policies of austerity and the war on workers' wages. As Irwin implicitly notes, the ECB and the IMF now agree that austerity is the problem rather than the solution. It is a testament to Germany's hegemony over the EU that the realization of two of the three members of the troika (the ECB and the IMF) that the third member -- the EU parliament controlled by deeply conservative parties that worship austerity as if it were a moral matter and that take their direction from German diktats -- that Germany is leading Europe over a cliff has not been enough for them to dig in their heels and choose survival rather than economic and political suicide.
Irwin describes the problem in these terms.
"If Mr. Draghi and the E.C.B. take insufficient action and the eurozone economy indeed stagnates or falls into a long recession, it could mean a lost generation of Europeans living with high unemployment and declining living standards. We can't know for sure whether Europeans would react to this outcome by being content to muddle through, or if they would elect radical politicians who might endanger the era of a Europe united around liberal democratic ideals. So far Europeans have been O.K. with muddling along amid high unemployment, but it's a really bad result either way."
I understand what Irwin means by the sentence "so far Europeans have been O.K. with muddling along amid high unemployment," but it is worth adding two cautions. First, what he is describing is German and Dutch conservatives being "O.K." with the Italian, Spanish, and Greek workers that they despise suffering "high unemployment" levels that exceed the Great Depression in length and severity. That is not "muddling along" -- that is "revealed preferences." The conservatives and their ultra-right parties that dominate the European Commission are simply the most open about revealing their preferences, i.e., their contempt for the over 100 million Europeans who are citizens of nations suffering from Great Depression levels of unemployment as a result of the Commission's demands for austerity and the war on workers' wages. It is now inescapable that the great bulk of Europeans do not believe in any pan-European unity in which the citizens of other nations are even remotely akin to fellow-citizens.
Second, to date it has been overwhelmingly ruling parties of the left (e.g., Spain, Portugal, Greece, and (now) France) that Germany has forced to inflict austerity in circumstances where it is likely to promptly cause a severe recession. The resultant betrayal of the parties' principles and base has discredited these parties and led to them being crushed at the polls. The replacement governments of the right have given slavish support to austerity. The Socialist Party has not yet lost power in France due to the timing of elections. President Hollande was elected primarily because his right wing opponents embraced austerity and forced France into recession. Hollande was elected on a platform promising to lead the resistance to austerity. Instead, Hollande purged his leading anti-austerity stalwarts and is spectacularly unpopular. Hollande is so feckless that his policies and statements on austerity are bewilderingly incoherent.
Angela's Albtraum
The limited popular resistance to austerity will grow if Germany's diktats continue to dominate. Soon, it will be overwhelmingly conservative parties inflicting Germany's twin demands of austerity and the war on workers' wages. When those policies produce the results that Kaletsky and Irwin warn about, the conservatives will sow the seeds of resistance similar to those sown by the Washington Consensus' austerity demands. Latin America's election of over a dozen progressive heads of state who ran for office on the basis of their opposition to the Washington Consensus is not the inevitable result in the EU, but it is a serious possibility, Europe's best hope for reform, and Angela's Albtraum.
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