On several occasions, including yesterday, Paul Krugman has warned about the disastrous economic consequences of the European religion of austerity, which against all sound economic theory, insists that the way to fight an economic downturn is through savage budget cuts. So far, it has only brought a deepening depression. The pain has not been spread evenly, nor have the non-sinners been spared. Spain, for instance, had a very small budget deficit and is now suffering primarily because of the burst housing bubble, a bubble that was inflated by German banks, the country that is now insisting that austerity is the cure for all that ails Europe. The prescription has ramped Spain’s unemployment rate past 20%, with no signs that the medicine is likely to do any good soon. In fact, it appears to be as efficacious as bloodletting was as a cure-all some centuries back.
Krugman observes:
What is the alternative? Well, in the 1930s — an era that modern Europe is starting to replicate in ever more faithful detail — the essential condition for recovery was exit from the gold standard. The equivalent move now would be exit from the euro, and restoration of national currencies. You may say that this is inconceivable, and it would indeed be a hugely disruptive event both economically and politically. But continuing on the present course, imposing ever-harsher austerity on countries that are already suffering Depression-era unemployment, is what’s truly inconceivable.
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What we’re actually seeing, however, is complete inflexibility. In March, European leaders signed a fiscal pact that in effect locks in fiscal austerity as the response to any and all problems. Meanwhile, key officials at the central bank are making a point of emphasizing the bank’s willingness to raise rates at the slightest hint of higher inflation.
So it’s hard to avoid a sense of despair. Rather than admit that they’ve been wrong, European leaders seem determined to drive their economy — and their society — off a cliff. And the whole world will pay the price.
The economic effects will be bad enough, but I haven’t seen much discussion of the political effects, which might be a whole lot worse. We tend to forget that, particularly along the Southern periphery, [seemingly] stable democratic states are a recent innovation, and there’s no reason to believe they can survive economic hard times induced by foreign governments and foreign banks. It’s an open invitation to a demagogue.
I’m currently reading Dark Continent: Europe’s Twentieth Century by Mark Mazower. He makes the point that, subsequent to World War I, and particularly during the world wide depression that followed it, parliamentary democracy was in a fairly bad odor in many European countries. It appeared, for various reasons, to be unable to address critical economic problems, and there was a lot of political and intellectual support for authoritarian nationalistic systems to replace it. As Krugman points out, democratically elected governments then were doing precisely what democratically elected governments are doing now. Whether from the right or the left, democracies were subverted in a lot of countries, and it was only the victory over the Nazis, and a renewed dedication to democracy, that stemmed the tide of authoritarianism in Western Europe. According to Mazower, the democracy that prevailed did so in large part because, on both the left and the mainstream right, there was a recognition that democratic nations had to deliver the goods to their populations; that laissez faire was a prescription for disaster and that only an interventionist social democracy, with enhanced respect for human rights, would succeed. It worked, and democracy flourished in Europe after the war.
Here in the United States we have pretty much abandoned even the pretense that the government has a role in promoting equality or in delivering benefits that don’t also enrich the rich (witness the Health Care Plan, which despite any good it may do, is actually a massive transfer to the insurance companies), and we are steadily slipping into a plutocracy that maintains a façade of democracy as a means of social control. Representative democracy is a deep seated tradition here, and as long as we can be snookered into believing that it is representative and democratic, we’ll probably remain quiescent. We don’t appear likely to spawn a dictator anytime soon. Europe is now following our lead so far as priorities are concerned, but it is by no means certain that the people there will be as slow to ignite as us. There is certainly no longstanding tradition of representative democracy in Southern Europe comparable to that here.
In my own lifetime there have been dictatorships in Greece, Spain and Portugal. Just prior to my birth, Italy had Mussolini, and since then a history of precarious and often risible democratically elected governments. Berlusconni’s staying power hardly gives one a warm and fuzzy feeling about Italian immunity to demagogues. Is there any reason to believe that Greece, Spain, Portugal, or Italy, if they continue to be subjected to needless economic suffering, will suffer in silence? Given their histories, isn’t there reason to fear that, in light of democratic ineptitude, they may see an authoritarian regime of the right or the left as their only hope to wrest control of their country away from those bankers and creditor nations? Isn’t there a danger that an exit from the Euro can happen only if done by a dictator or junta, because the elected governments are unable or unwilling to do it themselves?
We would be fools to believe that stable democratic governments are an eternal norm in Europe, or even something we can count on for the near term. If the people of these countries feel they are being ground under the heel of the bankers and the rich countries, they will start listening to someone, or some group of someones who will promise an easy answer to their problems. It doesn’t help that the easy answers may also be the correct answers from an economic standpoint.
