The conventional wisdom in Europe goes like this: The leadership of Europe has been a total disaster throughout the crisis, but it would be HORRIBLE if France changed course and didn’t re-elect Sarkozy.
Today we get the first results of the French election, and we’ll see, most likely, that Sarkozy and his liberal challenger Francois Hollande will be headed for a runoff this summer. Hollande will likely finish first, and he’s the favourite.
Outside of the fact that Sarkozy is the establishment, stay-the-course candidate, and Hollande is the liberal who wants to raise taxes, most people don’t know much about the election
Paul Krugman, who also doesn’t know much about the French election, offers his take:
I don’t know much about French politics. From here, however, it looks as if Sarkozy has a very clear idea of what he should be doing on economic policy, while Hollande doesn’t.
And this is a reason to root for Hollande.
If Sarkozy somehow pulls off an upset win, it will mean more of the same European economic orthodoxy — the insistence that fiscal responsibility is the only virtue and austerity the universal answer. This orthodoxy somehow retains its grip despite overwhelming evidence that it’s wrong and disastrous failures in practice.
This is spot on.
Ever since the crisis, world leaders have developed a fetish for responsibility, seriousness, and fiscal rectitude. In Europe, they have an especially big problem, because the Germans are so infatuated with sound money and an ECB that does nothing ot juice the economy.
This strategy hasn’t just held back the recovery, it’s actively making things much worse. Take a look at Spain. Its market has been going akimbo lately right in the aftermath of the harsh new austerity measures proposed by Prime Minister Rajoy. That’s because, as Wolfgang Munchau eloquently put it, markets are worried that the austerity will succeed… in killing the economy
But as Paul McCulley has been arguing, what the world needs is an outbreak of irresponsibility. Specifically, he advocates central bank and fiscal policies that do the exact opposite of what orthodox, responsible thinking would call for. Only then will the global economies be shaken out of their multi-year malaise.
So yes, Europe desperately needs a hard break with the “responsible” status quo.
People are terrified of Hollande because he favours high taxes on the rich, and doesn’t want to sign the fiscal compact that was agreed to late last year. But in times like this, the irresponsible path is the way to go.
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