Monday, March 8, 2010
The European Monetary Fund seems to be the idea du jour. By giving it a moniker that resembles the IMF, leaders no doubt hope that the institution will seem relatively familiar and unthreatening, even if large sums of money will be mentioned in connection with it (Simon Johnson speaks of 250 billion euros in cash equivalents and another 500 billion in credit lines--real money by anybody's reckoning). Of course the great political virtue of creating an intermediary body of this sort is that it alleviates the political problem of asking citizens to pay to clean up somebody else's mess. It's one thing to have your country kick in a hundred billion or so to set up a rather abstract "fund" for the purpose of bolstering "economic stability"--who could be against economic stability? It's another if you ask your French or German state worker to stay on the job until age 67 to pay the pension of a Greek bureaucrat who retired at 52. Nobody wants to be in the position of justifying the bill for bailing out the Greeks to the voters back home. By adding a layer of abstraction, you encourage people to think about "the system" rather than "the sponges." It might even work, but there will be plenty of temptation for nationalist parties to point out who's getting the benefits and who's bearing the costs, even if, ultimately, the benefits will also accrue to depositors in the financial institutions in the creditor countries that won't fail if their bad loans to Greece and Spain don't default. But the politics are tricky and could blow up in everyone's face--as in the United States.
Paul Krugman backs Rebecca Wilder: some countries in Europe are hoping to find their way out of crisis by "competitive deflation," reducing unit labor costs in the hope of increasing their export share. But this is not a game at which everyone can win. It is a form of "beggar-thy-neighbor" economic policy, and if everyone plays, everyone loses.
President Sarkozy must have choked on his coffee this morning when he read this in the Financial Times:
In Europe, the reputation of Germany’s conservative chancellor is second to none, as the ultimate deal-maker with a central role at the heart of any agreement among the 27 members of the European Union. When she travels to Washington next month, she will be greeted by Barack Obama as the US president’s most important transatlantic partner.But France will inevitably be a partner to this, if it comes to pass, as Sarko hinted yesterday that it will.