Have just finished writing two papers with hard deadlines – now in the throes of grading – so two quick points, which either sort-of-resonate-with or half-contradict each other in ways that I don’t have time to think or write about.
First: ungovernability. Or, rather, “ungovernability.” Chris got a lot of flak in comments for suggesting that centrists and center-right people in the media were going to come out with suggestions that a bit of dictatorship might not be a bad idea. As he pointed out, there used to be a lot of people on the right and center-right who made these arguments – and not just about countries in the developing world. Crouch and Pizzorno’s The Resurgence of Class Conflict in Western Europe is particularly good on this, as I recall. That said, unlike Chris, I don’t have strong expectations that this set of rhetorical tropes is going to emerge in the very near future (although it may in the medium term). The old crop of center-right dictator-fanciers were fans of dictatorships not because they were opposed to democracy tout court, but because they were opposed to certain parts of the economy being subject to political control. This is not so much of an issue these days. From a certain point of view, the European Central Bank is a more-than-acceptable functional substitute for General Augusto Pinochet. Indeed, being less publicly embarrassing, it is arguably superior. One of these days soon, by the way, I’m going to write my post on the editorial policy of the Economist during the Irish Famine – it wasn’t one of its finer moments.
There are certainly mutterings from the right about how central banks are losing their “credibility” and “independence” by trying to stop markets from collapsing – but as long as central banks’ market interventions are plausibly short-term, and aimed at restoring stability to the existing order, I don’t think we’ll be seeing calls for stronger measures. The system as it is is more or less doing as it is supposed to.
Second – Germany, Greece and Europe. In fairness to myself, I think I called this pretty well (n.b. though that my ability to predict Italian politics is less than impressive). This said, I think that the triumphalism among French politicians about how they have snookered Germany into some form of EU level economic government is premature. The package that we’re hearing about – massive though it might be if it is ever invoked – is an emergency measure. We’re likely to see some longer term institutional innovations that are likely to cement a back-up arrangement. What we are not likely to see is the institutionalization of large scale fiscal transfers. Instead, we’re plausibly going to see moderate fiscal transfers that are aimed at boosting the competitiveness of Southern European economies, combined with more extensive oversight of national fiscal policy.
Germany would like to see an economic government which mostly consisted of other countries adopting harsh fiscal retrenchment combined with extensive oversight.
This isn’t going to happen, much as some German economists might like it to. Germany simply doesn’t have the bargaining power to pull it off. Its threats to expel recalcitrant countries from EMU are now very obviously non-credible. Furthermore, Germany has just demonstrated that it is willing, however reluctantly, to bail others out if the crisis hits. So Germany is left with the unenviable realization that (a) its future economic and political fortunes are linked to EMU, but (b) it doesn’t have the leverage to force others to take measures that it sees as necessary to avoid crisis. This means that it needs carrots as well as sticks to persuade other countries to become less profligate. The only policy tool that I think Germany has is more money – and more specifically, spending money along with other rich member states in countries like Italy and Greece as a quid-pro-quo for reform of taxes, revenue-raising, labour markets and educational systems, which would make these countries more economically prosperous over the longer run, and less likely to pull Germany along with them into further crises. I wouldn’t want to be the politician telling German tax payers that this is necessary. But I’m not seeing that Germany has many other plausible choices.