Friday, August 29, 2014

The Fall of France

Paul Krugman, NYT
AUG. 28, 2014

François Hollande, the president of France since 2012, coulda been a contender. He was elected on a promise to turn away from the austerity policies that killed Europe’s brief, inadequate economic recovery. Since the intellectual justification for these policies was weak and would soon collapse, he could have led a bloc of nations demanding a change of course. But it was not to be. Once in office, Mr. Hollande promptly folded, giving in completely to demands for even more austerity.

Let it not be said, however, that he is entirely spineless. Earlier this week, he took decisive action, but not, alas, on economic policy, although the disastrous consequences of European austerity grow more obvious with each passing month, and even Mario Draghi, the president of the European Central Bank, is calling for a change of course. No, all Mr. Hollande’s force was focused on purging members of his government daring to question his subservience to Berlin and Brussels.

It’s a remarkable spectacle. To fully appreciate it, however, you need to understand two things. First, Europe, as a whole, is in deep trouble. Second, however, within that overall pattern of disaster, France’s performance is much better than you would guess from news reports. France isn’t Greece; it isn’t even Italy. But it is letting itself be bullied as if it were a basket case.

On Europe: Like the United States, the euro area — the 18 countries that use the euro as a common currency — started to recover from the 2008 financial crisis midway through 2009. But after a debt crisis erupted in 2010, some European nations were forced, as a condition for loans, to make harsh spending cuts and raise taxes on working families. Meanwhile, Germany and other creditor countries did nothing to offset the downward pressure, and the European Central Bank, unlike the Federal Reserve or the Bank of England, didn’t take extraordinary measures to boost private spending. As a result, the European recovery stalled in 2011, and has never really resumed.

(More here.)

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