The Tragedy and Farce of European Policy

LONDON/ANN ARBOR – More than four years into the worst economic downturn since the Great Depression, Europe remains mired in a vicious cycle of low or no growth, unsustainable debt, and strict austerity measures. In May, 24.9 million people were unemployed across the European Union’s 27 member states – an increase of nearly two million from last year, and nine million from the first quarter of 2008. In the same month, eurozone unemployment reached 11.1%, with Spain and Greece at Great Depression levels of 24.6% and 21.9%, respectively. Nevertheless, to paraphrase Karl Marx, the policies that created this tragedy seem destined to be endlessly and farcically repeated.

Existing prescriptions for saving the eurozone will not work. Internal devaluation – cutting wages and benefits across the southern periphery to restore competitiveness – will impede growth further. Nor would the type of liberalizing reforms that contributed to triggering the crisis – including privatization of public resources and deregulation of markets – invigorate the eurozone’s ailing economy. And the idea that a eurozone breakup would help countries to escape stagnation by fostering competition is deeply flawed.

European policymakers must begin to address the euro tragedy with fresh thinking. There are many options for expanding economic activity and employment other than the neoliberal orthodoxies pushed by some economists, the International Monetary Fund, bankers, corporate managers, and sovereign-wealth funds.

First, Europe’s leaders must face the truth about deficits and debt, rather than the cynically filtered faux-facts presented by the European Commission and the IMF. The appropriate debt measure – “net debt” (public liabilities minus all financial assets) – reveals that eurozone countries’ debt burdens are considerably lower than portrayed.