Wednesday, November 14, 2012

The Beginning of the End for Austerity?

No sooner did François Hollande forthrightly embrace austerity as the policy of his administration than hundreds of thousands of people took to the streets in dozens of cities across Europe, primarily in the southern tier but also in Belgium and France. The magnitude of the protests, the violence that broke out around the edges of demonstrations in many countries, and the sheer visibility of the pain that austerity has inflicted suggest that things may not hold together much longer. What is more, the likelihood of a Greek default, not in spite of but because of austerity, which has actually decreased Greek GDP and increased debt, only exacerbates the situation. Is a disorderly end to the euro in store. Once again, the possibility seems real, as does the prospect of major political upheaval.

Revolt at Sciences Po


ECB Governance

Sebastian Mallaby faults the governance structure of the ECB--one member, one vote. Germany, he argues, originally saw the ECB as an extension of the Bundesbank and an instrument for promoting its own economic views. But he believes that German influence has been overwhelmed by the sheer number of opponents.

There is some truth in this, but the argument is overstated. Throughout its history, the ECB has for the most part acted in consonance with German views. Its charter limits its freedom of action, its staff, drawn from national finance ministries, is dominated by Germans, and its directors have always had to pass muster with German vettors, even if they have on occasion demonstrated a certain independence, which is only to be expected.

Still, it is true, as Mallaby also indicates, that the crisis has introduced new tensions into the relationship between Germany and the ECB. But where has the crisis not introduced new tensions? And perhaps these tensions are productive, in that German views about economic management need to evolve if the dilemmas that Mallaby evokes are to be overcome.