Is Europe Too Much Like Republicans?

By Big Tent Democrat, Section Economy
Posted on Mon Mar 16, 2009 at 07:50:59 AM EST
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Paul Krugman sort of poses this question:

The clear and present danger to Europe right now comes from a different direction — the continent’s failure to respond effectively to the financial crisis. Europe has fallen short in terms of both fiscal and monetary policy: it’s facing at least as severe a slump as the United States, yet it’s doing far less to combat the downturn.

Why is Europe falling short? Poor leadership is part of the story. European banking officials, who completely missed the depth of the crisis, still seem weirdly complacent. And to hear anything in America comparable to the know-nothing diatribes of Germany’s finance minister you have to listen to, well, Republicans.

But Europe's biggest failure is in its powerless continental institutions. Krugman writes:

Europe’s economic and monetary integration has run too far ahead of its political institutions. The economies of Europe’s many nations are almost as tightly linked as the economies of America’s many states — and most of Europe shares a common currency. But unlike America, Europe doesn’t have the kind of continentwide institutions needed to deal with a continentwide crisis.

Krugman posits that without political integration, the creation of a single European currency was premature:

Europe, in other words, is turning out to be structurally weak in a time of crisis. . . . In the past, Spain would have sought improved competitiveness by devaluing its currency. But now it’s on the euro — and the only way forward seems to be a grinding process of wage cuts. This process would have been difficult in the best of times; it will be almost inconceivably painful if, as seems all too likely, the European economy as a whole is depressed and tending toward deflation for years to come.

Does all this mean that Europe was wrong to let itself become so tightly integrated? Does it mean, in particular, that the creation of the euro was a mistake? Maybe.

Republican governors like Sanford of South Carolina and Perry of Texas are, thankfully, merely poseurs, with no real power to influence national fiscal and monetary policy. Europe, on the other hand, is hamstrung by its Perrys and Sanfords. In short, Europe is too Republican when it comes to the current economic crisis.

Speaking for me only

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Is Europe Too Much Like Republicans? | 18 comments (18 topical)

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Maybe... (5.00 / 1) (#2)
by kdog on Mon Mar 16, 2009 at 08:16:38 AM EST

Europe simply isn't panicking like we are on this side of the pond...or they have no plan to use the crisis as an excuse to give money to money like we are...aka the big con theory.

Hyperinflation terror (5.00 / 1) (#3)
by gyrfalcon on Mon Mar 16, 2009 at 09:03:51 AM EST

Piece in the Times the other day pointed out that although our great fear is the memory of the Great Depression, Europe's great fear is the memory of the spectacular hyperinflation of post-war Germany. (I have tucked away somewhere a few 5 million mark bills from the period.)

As Krugman points out, Europe's much more robust welfare safety net makes a major economic downturn significantly less painful in human terms for them than it is for the U.S. That protection doesn't help with hyperinflation, and there's no comparable central bank that can act swiftly to counter it if it starts to happen.

I think it's not correct to compare European attitudes to those of U.S. Republicans. Europe is not directly comparable to the U.S. in the way its financial and monetary system is constituted, their human vulnerabilities in a recession are much better cushioned, and their economic history holds a different but equally strong lesson.

They think, possibly rightly, that they can weather this without taking the risk of the hyperinflation they fear through massive stimulus spending. The question is whether the Obama administration can persuade 16 different governments to take actions they see as being potentially against their self-interest for the sake of lightening their own economic downturn somewhat and saving the bacon of the U.S.

How long do you think their welfare state (none / 0) (#5)
by andgarden on Mon Mar 16, 2009 at 09:48:02 AM EST

can sustain say 25% unemployment?

BTW, 1M Mark is SMALL. I'm pretty sure I have a stack of billion Mark notes around!


Probably about as long (5.00 / 1) (#7)
by gyrfalcon on Mon Mar 16, 2009 at 10:30:51 AM EST

as the U.S. with 5 percent unemployment could sustain a few hundred percent annual inflation rate?

I don't know what the solution is or where the "golden mean" lies here. I'm just pointing out that Europe's resistance to enacting massive stimulus isn't contrary, moronic and irrational the way Republican governors turning down stimulus money or Mitch McConnell agitating for government "belt-tightening" is.

I remember looking at those 5M DM notes even as a child here in the U.S. and finding them absolutely terrifying. I obviously didn't understand the ecnomic circumstances they represented, but I could sure get the sense of the rug being pulled out from underneath everything.


You're right that there's a needle to thread (5.00 / 1) (#8)
by andgarden on Mon Mar 16, 2009 at 10:43:19 AM EST

but central bankers have the tools to head off hyperinflation without much difficulty.

They are causing pain for no reason, and frankly their Weimar fear is totally irrational. Can you imagine if people prevented scrambling the air force after 9/11 because they remembered Hiroshima and Nagasaki?


Read the whole article (none / 0) (#12)
by gyrfalcon on Mon Mar 16, 2009 at 11:23:59 AM EST

The European Central Bank cannot act without approval from all 16 countries, which means it can't act quickly.

Again, not saying the Euros are right, just that they have a different system than we do and legitimately different worries.


: I did read the whole article (none / 0) (#16)
by andgarden on Mon Mar 16, 2009 at 02:47:15 PM EST

It's not that the ECB can't act, but that it fears that it won't be backed up. But that's neither here nor there as far as hyperinflation is concerned.
The problem with the ECB is that it's really the Bundesbank.

i read dr. krugman's piece. (5.00 / 1) (#10)
by cpinva on Mon Mar 16, 2009 at 11:03:51 AM EST

while i'd agree that the lack of a unified political system prevents the europeans from taking a common approach to the current economic crisis, i'm not so sure we necessarily want a single european government (that's pretty much what dr. krugman is talking about).

britain, france and germany share a common ancestral founder (charlemagne), but that never stopped them from trying to destroy each other (family feuds are the worst). imagine the tragi-comic spectacle of all of europe, and britain, attempting to coalesce under a unified government.

though the euro is clearly going to cause problems, absent a mechanism for common action, they are just going to have to fumble around, until they get it right, or realize they need to work together.

or not.

: I understood (5.00 / 1) (#17)
by cal1942 on Mon Mar 16, 2009 at 02:49:05 PM EST

the Euro to be a device to facilitate trade. I always had the impression that the Common Market, Euro if not intended to unite Europe was a 'threat' to do so simply as a matter of evolution and why Great Britain opposed entry into the Common Market for so long. British foreign policy sought to oppose any attempt at unifying the continent.
By the way:
britain,... share a common ancestral founder (charlemagne)
I know I'm really anal about these things, but:
The Anglo-Saxon kingdoms in Britain were never part of the Holy Roman Empire.

It's funny (5.00 / 1) (#11)
by jbindc on Mon Mar 16, 2009 at 11:19:30 AM EST

Because Republicans constantly are saying that the Democrats are turning us into socialists like Europe!

Nothing new (1.00 / 2) (#4)
by Abdul Abulbul Amir on Mon Mar 16, 2009 at 09:26:41 AM EST

But Europe's biggest failure is in its powerless continental institutions.

Krugman seems to believe that the solution, as always, is virtually unlimited central power following Krugman's direction.

Just as all loyal (5.00 / 4) (#6)
by jondee on Mon Mar 16, 2009 at 09:51:49 AM EST

dwellers on planet wingnuttia thought, a few years back, that the soloution to terra should be in the hands of a select inner circle of neoons wielding "vitually unlimited central power".

Different problems demand different approaches; some more coordinated and centralized than others.


: It sounds like (1.00 / 2) (#9)
by Wile ECoyote on Mon Mar 16, 2009 at 10:48:24 AM EST

Obama now. The problems with savior-based gov't.

Persons not interested (none / 0) (#1)
by Big Tent Democrat on Mon Mar 16, 2009 at 08:11:41 AM EST

in the topic of the posts should not comment in them.

Comments expressing lack of interest in the subject of the posts are off topic and will be deleted.

"Republican" is the wrong word. (none / 0) (#13)
by TheRealFrank on Mon Mar 16, 2009 at 11:37:00 AM EST

It is true that economic integration is far ahead of political integration in Europe, and that this is a problem.

But that's nothing "Republican" about this problem itself, it just means that it is hard to take centralized action.

Sadly, attempts to take steps to remedy this situation (the European "constitution") was met with misguided populist resistance in some countries, sinking the whole thing. That was actually more comparable to Republicans: the sentiments used to whip up anti-European feelings were strangely similar to the "the UN is making is lose our independece" line that Republicans use.

: Sure (5.00 / 1) (#14)
by Big Tent Democrat on Mon Mar 16, 2009 at 11:40:24 AM EST

It was just a titling device for the most part.

They might be complacent (none / 0) (#15)
by lilybart on Mon Mar 16, 2009 at 11:49:00 AM EST

because there is a social safety net in most European countries so homelessness and hunger don't happen there. And health care and school are affordable.

So many the people have not suffered enough yet?

Not Sure I'm Agreeing w/Krugman (none / 0) (#18)
by pluege on Mon Mar 16, 2009 at 07:19:04 PM EST

US (so far):

thrown generations of wealth into the money pit of the 2% obscenely greedy never to be seen from again.
widespread economic loss and suffering of millions
no end in sight - just more decline and suffering

Europe (so far):

* taking a go-slow approach because the social safety net minimizes impact
* no end in sight, but no need for panic either

Maybe I'm too much of an economic neophyte to understand Krugman's concerns, but so far I'm going with the European system hands-down.