Prosperity through lower wages? - Ezra Klein - The Washington Post: "But to give the GOP’s report a bit more credit, its argument is that in the mid-1990s, a number of small, European nations (and Canada) sharply cut government spending and saw rapid economic growth afterwards. The problem, as the International Monetary Fund details in this review (pdf) of the austerity measures attempted by developed nations, is that these countries understood that cutting government spending would kill demand, and so they compensated with policies that would keep demand strong. Those policies were 1) really aggressive efforts on the part of the central bank, 2) devaluing their currencies, and 3) living in the mid-1990s, when the global economy had one of its best-ever decades. Republicans oppose policies that would lead to #1 and #2, and 2011 is a very different moment, in terms of global demand, than 1994.That said, the IMF report does say two things that back up conservative preferences: 1) cutting deficits by cutting spending does appear to be better for the economy than cutting deficits by raising taxes, so it’s not crazy to want to see spending cuts predominate over tax increases, and 2) over the long-term, cutting deficits does help the economy. Unfortunately, over the short-term they do real harm [....]
ECB: Whither Europe after the crisis?: To understand how Europe will develop after the crisis, let me start with two observations. First, the crisis has caught Europe unprepared. Second, Europe has, in a sense, responded to the crisis in a surprising way.The lesson to be drawn is that Europe is still evolving, growing, continuing on its path of integration. This is not happening, however, according to some pre-defined, agreed plan, but rather in response to the challenges it faces, which in some cases are likely to endanger the very existence of the Union. Europe moves forward when it finds itself at risk of taking a step back. At that point the costs of immobilism exceed those of mobility. It manages to find the energy needed to overcome the political difficulties of making another step forward. [....]
Europe’s integration is therefore largely unpredictable because it depends on the challenges and shocks facing European society, and on its ability to understand that the step forward brings more advantages than immobilism.[....] For example, it is not possible to determine in theory if the euro area is an optimum currency area according to pre-established objective criteria. A thorough analysis would probably stipulate the opposite. But experience has shown that the euro area is certainly not one in which it is an optimum arrangement to have 16 different currencies that float freely against each other or are tied by intervention mechanisms. The experience of the European Monetary System and the currency turmoil of the 1980s and 1990s were instrumental in establishing that the transition to a single currency was needed, particularly to avoid the collapse of the Single Market, from which all the countries have benefited. [...]. Without the failure of Bretton Woods and the European Monetary System, we would not have the euro today. There would have been no need.
Centre for European Reform: Europe's damaging obsession with 'competitiveness': "Many European policy-makers and business leaders believe that a country's economic growth prospects depend on its ability to capture a growing share of global markets. Indeed, European policy-makers are obsessed with national 'competitiveness' and genuinely appear to think that prosperity is synonymous with trade surpluses. Of course, imports have to be financed by exports. But the focus on trade competitiveness risks drawing attention away from Europe’s underlying problem, which is very weak productivity growth.
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