It's a commonplace of the current debate that the US and UK economies are doing reasonably well, given the effects of that financial crash, while areas of the eurozone or doing horrendously badly. It's a further commonplace observation that the difference in performance here is something to do with the different economic policies which have been followed in the different places. Given that the same economic problems have led to divergent performances it is reasonably obvious that it must be the policy differences which explain the different outcomes.
However, what very few seem to realise, outside the circle of people who know their economics, is just how bad the policy mistakes in the European Union, in the eurozone, have been. At which point we get Ben Bernanke telling it like it is:
The risks for the European project posed by these economic developments are real, no matter what the reasons for them may be. In fact, the reasons are not so difficult to identify. The slow recovery from the crisis of the euro zone as a whole is the result, among other factors, of (1) political resistance that delayed by many years the implementation of sufficiently aggressive monetary policies by the European Central Bank; (2) excessively tight fiscal policies, especially in countries like Germany that have some amount of "fiscal space" and thus no immediate need to tighten their belts; and (3) delays in taking the necessary steps, analogous to the banking "stress tests" in the United States in the spring of 2009, to restore confidence in the banking system. I would not, by the way, put "structural rigidities" very high on this list. Structural reforms are important for long-run growth, but cost-saving measures are less relevant when many workers are already idle; moreover, structural problems have existed in Europe for a long time and so can't explain recent declines in performance.
That Greece had a spendthrift governing class for decades is true. That Finland has seen both
Which of course gives us the structural problem of the euro itself. By definition it rules out the use of monetary policy to deal with regional problems for monetary policy cannot be varied by region in a currency union. The lack of any fiscal policy or transfers which cover the area mean that we are bereft of any policy at all to deal with asymmetric shocks.
But that's not enough of a mistake for the European ruling class of technocrats. What they've also done, as Bernanke points out, is fail to use the tools they do have properly. As Scott Sumner repeatedly points out the ECB raised interest rates a couple of years into the worst economic performance in 70 years. Further, it was dreadfully slow, four years late at least, in starting QE.
As Paul Krugman points out:
Does all this sound sort of … familiar? Kind of like what other bearded Anglo-Saxon economists have been saying? As I’ve tried to point out for a long time, in this policy debate the supposedly radical types are the ones doing standard, more or less textbook economics, while the respectable voices have subscribed to fantasies ungrounded in either history or theory.
You might think that having one of history’s most celebrated central bankers weigh in on the anti-austerity side of the issue would change perceptions about what’s serious as opposed to Serious. But don’t bet on it.
This is also what a number of Anglo-Saxons (like myself, not economists and not necessarily bearded at any particular time) have been saying all along. We've not only got the wrong structure in the eurozone we've got the wrong policies being followed within that structure.
Which is the basic problem with the standard European deal in the first place. The point has always been to concentrate power in Brussels, where those nice, clever and public-spirited technocrats can force us all to do what is best for us far away from the pressures of tub-thumping populism and democracy. But that brings with it two different problems, the first being that 500 million people is simply too large a group to be run to just the one plan, by just the one system. The second being that we've allowed that powerful centre to be colonised by those ignorant of the various subjects under discussion. That's why we not only get that mono-policy for the continent, we also get the wrong mono-policy.
The answer is of course to not only break up the euro but also to break up the European Union. Back to the nation states it is then where allowing the idiots to gain power only affects a few tens of millions at any one time, not half a billion, and where we do still actually have elections that enable us to throw said idiots out.
