While the feelings of the people of Europe are clear regarding austerity-they're against it, there are some who argue that there's no choice. Incoming French President Hollande and the incoming anti austerity politicians incoming in Greece after all "have no choice." They simply "must" please the bondholders or all else is lost. Of course Greece for example could leave the euro. But nobody really seems to want that even the large group of Communists just voted for in Greece. Most of the Greek people themselves don't want to leave the EU.
The self-righteousness of the austerians remains very thick:
"Wishful thinking prevailed at the polls in France, Greece and Italy on Sunday, when voters were asked to choose between leaders urging them to bear up against the pain of austerity measures if they want to keep a strong common currency or put off the belt-tightening for another day."
"As Daniela Schwarzer of the German Institute for International and Security Affairs told The Times' special correspondent Aaron Wiener in Berlin, Germany and France recognize that they have to work together to resolve the debt crisis and refrain from public disagreements that could undermine confidence in their plans."
“If Germany and France appear divided," she noted, "the credibility of promises to rebuild the Eurozone is harmed.”
But doesn't Ms Schwarzer belie this complacent belief that austerity will win? It suggests that if France is not so supportive going forward as Hollande has promised austerity is not inevitable.
In other words austerity is inevitable, a fait accompli, the Austerians will get their way one way or the other. Yet Hollande said in his victory speech that austerity is no longer inevitable.
I would argue that if the new governments don't ease on the austerity, don't do as promised in going to a new path then they will follow today's losers. While I don't agree with much on the Wall Street Journal editorial page I do agree that it is troubling when the mainstream, centrist parties all get hammered. In Greece we see the Communists get over 6.5% of the vote while we see a Nazi party gain over 8.5%. But the mainstream has failed and let's hope the new guys voted in aren't looking to repeat the failed legacy of austerity.
Oh, of course Germany continues to talk like a tough guy-austerity is the choice, Period. But their job will get harder with less cooperation from the Elyses Palace in France. On the other hand Ezra Klein has not just one alternative to austerity but six:
1) "More inflation from the European Central Bank. More economic growth would make Europe’s problems a lot easier to handle. If Spain and Italy were growing at a healthy clip, their deficits would naturally shrink. One institution that could, potentially, help the euro zone grow is the European Central Bank. Here’s Paul Krugman: “The Continent needs more expansionary monetary policies, in the form of a willingness — an announced willingness — on the part of the European Central Bank to accept somewhat higher inflation.” More inflation would help uncompetitive countries like Spain bring down their costs more quickly, and it would potentially spur more spending and growth."
"The problem? Both Germany and Europe’s central bank have long been temperamentally hawkish on inflation. Most recently, the ECB declined to cut interest rates even though the euro zone is sliding back into recession."
2) "More stimulus from euro zone countries in good budget shape. It would be hard for countries like Greece, Italy, or Spain to borrow money now and spend it for stimulus, with the promise of cutting spending later, when the economy’s improved. As Joe Gagnon told me awhile back, there’s no way to make that promise of future austerity credible — unlike in the United States, where there’s lots of policy inertia, European parliaments can easily undo past promises. Lenders would likely balk."
But just because Greece, Italy, Spain, Portugal, and others have to rein in their budgets doesn’t mean everyone in the euro zone necessarily has to follow suit. Joseph Stiglitz, for one, has called on wealthier countries like Germany to invest more in infrastructure and technology in order to stimulate Europe’s economy. “I hope,” he said, “the debate will be what are the things we can do to promote growth rather than how do we strangle each other together.”
3) "Open the bailout fund for bigger countries. Right now, Europe’s wealthy countries have bailed out smaller periphery countries like Ireland, Portugal, and Greece. But some commentators think the bailout fund may need to get even bigger — and extend to countries that threaten to haul down the whole euro zone, like Spain."
"Here’s Wolfgang Munchau, writing in the Financial Times: “Fixing the Spanish crisis will have to start with the banks… The only halfway benign solution I can see would involve a European rescue programme for Spain that focuses specifically on the recapitalisation and downsizing of the financial sector. Spain would also need to undershoot the eurozone’s average inflation rate over many years to redress some of the lost price competitiveness. At the same time, the country needs to go easy on austerity.” The trouble, again, is that this will require more money from wealthy countries."
4) "Eurobonds. Many individual members of the euro zone have large budget deficits. Spain’s is 8.5 percent. Ireland’s is 13.1 percent. But if you look at the euro zone as a single entity, things look better. Last year, the euro zone’s deficit was just 4.1 percent of GDP—about half of the United States. In theory, Europe should be able to borrow money at fairly cheap rates if it could issue a single bond for the whole continent. And that would give the euro zone some breathing room in the current crisis. Many Europeans, from politicians like Hollande to commentators like Gavyn Davies, have called for just such a “eurobond.”
But there are all sorts of hitches. If the euro zone had one single bond, then countries like Spain and Italy would see their borrowing costs fall, but countries like Germany and Finland would have to pay more to borrow money. It could also create moral hazard—spendthrift countries would feel less pressure to rein in their debts. The Economist’s Ryan Avent recently ran through a few proposals from European think tanks to surmount these problems."
5) "More fiscal integration. The euro zone, as we’ve seen, is made up of a bunch of wildly disparate countries. Germany is much more productive than Spain, for instance. And that makes it hard for Spain to compete as long as it’s using a currency, the euro, that’s better suited for more productive workers in Germany."
"One idea, then, has been for the euro zone to do what the United States does and redistribute resources from rich to poor. As James Galbraith explained here, the U.S. has long used programs like Social Security or unemployment insurance or the TVA to lift up the poorer regions and make sure that states don’t implode when they fall into recession. Hollande, for one, has suggested that Europe move in this direction, with wealthier states setting up a European Investment Bank that can fund projects in poorer countries."
6) "Countries could just start leaving the euro zone. Of course, it’s possible that none of the above ideas would work. Germany doesn’t exactly sound thrilled with the idea of expending further vast resources to prop up countries like Italy and Spain and Greece."
"In that case, it’s always possible that individual nations could decide that being part of the euro is a bad idea and just leave. Jacob Goldstein explains how this would work for Greece. The country would default on its debt and wouldn’t have to keep spending money on interest payments. It could devalue its currency and make its exports more competitive. Of course, in the short run, Greece couldn’t borrow any money at all, it would have to slash spending considerably, and its economy would collapse."
"As Slate’s Matt Yglesias writes, “If Greece tried to exit the [euro]—or more likely was forced out by Spain or Italy cutting the cord—they’d be in for a dose of much more severe austerity. Think about Greek living standards converging with Serbia and Bulgaria.” Still, the fact that it’s a bad option doesn’t mean it isn’t an option."