The Great Debate
from Hugo Dixon:
Is the good life possible without economic growth?
Merely raising the question challenges the conventional contemporary wisdom that a society’s prime goal should be to boost its income continually. But it is one that the West, especially Western Europe, may have to confront. Europe is not just suffering the after-effects of a nasty cyclical downturn, it has probably entered an era of low growth.
Driven by its bailout loan terms, the Greek Parliament recently voted to lay off 25,000 more public employees. The public has responded with demonstrations while striking public sector workers try to disrupt air and rail travel, law enforcement and medical care.
The reaction to this weekend’s European Union bailout deal for Cyprus has gone from initial shock to rather predictable condemnation. “Europe botches another rescue,” ran the headline on an editorial in the Financial Times. “It’s as if the Europeans are holding up a neon sign, written in Greek and Italian, saying ‘time to stage a run on your banks,’ ” Paul Krugman, the economist and New York Times columnist wrote on his blog.
There is an increasing probability that financial markets will respond negatively to the unfolding economic and political drama unfolding across Europe. So far, the European Central Bank has pumped out cash and calmed the nerves of investors, but it needs to do more. A cut in interest rates by the ECB is crucial to contribute to a revival of growth across the euro zone. On its own, however, that is not enough. Europe’s political authorities need to counter the increasingly widespread perception that they lack the will to confront the zone’s economic ailments and promote a clear path to growth – austerity policies alone will not work.
Four years ago world leaders, meeting in the G20 crisis session, agreed they would all work to move from recession to growth and prosperity. They agreed to a global growth compact to be delivered by combining national growth targets with coordinated global interventions. It didn’t happen. After the $1 trillion stimulus of 2009, fiscal consolidation became the established order of the day, and so year after year millions have continued to endure unemployment and lower living standards.
The European crisis is no longer a European crisis. It is now everyone’s. Unless Monday’s G20 summit in Mexico coordinates a concerted global action plan right now, we face a global slowdown that will also have a deep impact on the U.S. presidential election and even on China’s transition to a new leadership. This is the last chance.