Intellectual Failure in the EU

Forward, comrades, we need to go backward!

by Dirk Ehnts, Econoblog101

The European crisis continues. The French president Hollande has now promised tax cuts to businesses and less government spending, according to Bloomberg:

The personal struggle threatened to hijack the Socialist president’s efforts to woo business leaders with a promise to slash payroll charges by 30 billion euros ($40 billion) and trim another 50 billion euros from government spending by 2017. An economy that has barely grown in the past two years has contributed to Hollande’s popularity sliding to record lows.

In a way, Hollande seems to think himself to be between a rock and a hard place. He cannot increase government spending because of the euro, he thinks, and then it is a deflationary rat race. However, France is big enough to challenge Germany on the rules and increase government spending, citing something like Article 122 of the Treaty establishing the European Union:

2. Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned. The President of the Council shall inform the European Parliament of the decision taken.

When Hollande doesn’t do it, it is because he doesn’t want to, not because he can’t. The politicians seem to claim that their room for maneuver is limited – but I would challenge that claim. Paul Krugman comments from over the pond:

As I said, it’s a sign of the haplessness of the European center-left. For four years, Europe has been in the grip of austerity fever, with mostly disastrous results; it’s telling that the current slight upturn is being hailed as if it were a policy triumph. Given the hardship these policies have inflicted, you might have expected left-of-center politicians to argue strenuously for a change in course. Yet everywhere in Europe, the center-left has at best (for example, in Britain) offered weak, halfhearted criticism, and often simply cringed in submission.

Here is a graph showing Real gross disposable income, deflator private consumption: households and NPISH:

Meanwhile, the German president – who has no political power – asks why neoliberalism has such a bad reputation and recommends that we should embrace it. As if reality – real estate bubbles financed by mostly non-/under-regulated (shadow) banks in the US, Ireland and Spain – never happened. As if bankers were not bailed out while workers were. As if inequality has not been rising for the last thirty years. As if lower wages for workers are creating more jobs.

The magnitude of the intellectual failure of European so-called elites is breathtaking. Both on the left and the right. We are in 2014, with the sub-prime crisis dating from 2008, and still most of their minds have not moved an inch closer to reality. There are exceptions, and I will continue to try to mention the good politicians as much as I can.