Analistas 05/07/2016

More timidity in the Eurozone

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Unfortunately, I share the economist Brad DeLong’s reaction: Is this really all that they can offer? I understand that in the effort to reach consensus an individual economist must trim back the more intellectually daring and politically difficult parts of what he might propose. But in this case, the search for consensus seems to have leached out practically all of the substance. I’m not even sure what, in any significant sense, they’re proposing that the eurozone do differently.

The authors are calling for liquidity support in times of crisis, and debt relief if necessary, I think. But that’s how Europe is already trying to muddle through. This group of economists doesn’t call for fiscal integration; they don’t even call for a eurowide system of deposit insurance. I’m really not sure what they are proposing, beyond tidying up the organizational chart.

They allude to the possibility of secular stagnation, which some of us consider a clear argument for fiscal stimulus and higher inflation targets. But all they suggest is ... structural reform, the universal elixir of the elites.

The only really new thing I read was the declaration that the level of expenditures - rather than the deficit - is the eurozone’s main problem, coupled with a call for expenditure rules. But where is that coming from? There is no correlation between economic performance during the euro crisis and the level of government spending as a share of gross domestic product - Austria has a big government, and Ireland and Spain have small ones by European standards.

And absent some clear evidence that big government is the problem, why declare that national sovereignty with regard to the size of the public sector be reduced?

Put it this way: From a macroeconomic perspective, Europe has a depressed economy with inflation that is well below a reasonable target, desperately in need of more demand. And here we have a manifesto calling for smaller government and structural reform.

The authors aren’t neoliberal ideologues. So what happened?

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