Thursday, April 3, 2014

Simon Wren-Lewis on the Responsibility Pact

Why does the economic policy pursued or proposed by the left in Europe often seem so pathetic? The clearest example of this is France. France is subject to the same fiscal straightjacket as other Eurozone countries, but when a left wing government was elected in April 2012, they proposed staying within this straightjacket by raising taxes rather than cutting spending. Although sensible from a macroeconomic point of view, this encountered hostility from predictable quarters, as I noted here. But in January this year President François Hollande announced a change in direction, proposing tax cuts for business and public spending cuts. When your macroeconomic announcements are praised by Germany’s foreign minister as courageous, you should be very worried indeed. Any hopes that Hollande might lead a fight against austerity in Europe completely disappeared at that point.

You could argue that France was initially trying to oppose irresistible economic and political forces, and no doubt there is some truth in that. But what was striking was the manner in which Hollande announced his change in direction. He said “It is upon supply that we need to act. On supply! This is not contradictory with demand. Supply actually creates demand“. This is not anti-left so much as anti-economics. Kevin O’Rourke suggests this tells us that to all intents and purposes there is no left in many European countries. It would indeed be easy to tell similar stories about the centre left in other European countries, like Germany or the Netherlands. With, that is, the possible recent exception of the Vatican!

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