An Emperor-Has-No-Clothes Moment for Europe

So Greece is in the international news again, as financial markets tremble at the possibility of a forced election in that country which could lead to the assumption of power by the leftist Syriza Party, which demands an end to EU-mandated austerity policies. Paul Krugman notes that austerians are simply reaping what they sowed during the last “Greek crisis:”

What happened last time, you may recall, was the exploitation of Greece’s woes to change the economic subject. Suddenly, we were supposed to obsess over budget deficits, even if borrowing costs were at historic lows, and slash government spending, even in the face of mass unemployment. Because if we didn’t, you see, we could turn into Greece any day now. “Greece stands as a warning of what happens to countries that lose their credibility,” intoned David Cameron, Britain’s prime minister, as he announced austerity policies in 2010. “We are on the same path as Greece,” declared Representative Paul Ryan, who was soon to become the chairman of the House Budget Committee, that same year.

In reality, Britain and the United States, which borrow in their own currencies, were and are nothing like Greece. If you thought otherwise in 2010, by now year after year of incredibly low interest rates and low inflation should have convinced you. And the experience of Greece and other European countries that were forced into harsh austerity measures should also have convinced you that slashing spending in a depressed economy is a really bad idea if you can avoid it….

[T[he devastation in Greece is awesome to behold. Some press reports I’ve seen seem to suggest that the country has been a malingerer, balking at the harsh measures its situation demands. In reality, it has made huge adjustments — slashing public employment and compensation, cutting back social programs, raising taxes. If you want a sense of the scale of austerity, it would be as if the United States had introduced spending cuts and tax increases amounting to more than $1 trillion a year. Meanwhile, wages in the private sector have plunged. Yet a quarter of the Greek labor force, and half its young, remain unemployed.

The remarkable thing, given all that, has been the willingness of the Greek public to take it, to accept the claims of the political establishment that the pain is necessary and will eventually lead to recovery. And the news that has roiled Europe these past few days is that the Greeks may have reached their limit. The details are complex, but basically the current government is trying a fairly desperate political maneuver to put off a general election. And, if it fails, the likely winner in that election is Syriza, a party of the left that has demanded a renegotiation of the austerity program, which could lead to a confrontation with Germany and exit from the euro.

And that possibility is what has roiled markets: an emperor-has-no-clothes moment for Europe. If the “Greek crisis” gets worse, it will be interesting to see if American opinion-leaders have a tenth of Krugman’s understanding of the implicit indictment of austerity, or instead retreat back to the shopworn cliches of irresponsible freeloading southern Europeans trying to intimidate those virtuous German bankers.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.