Opinion

Nicholas Wapshott

The EU-U.S. love-hate relationship

Nicholas Wapshott
Apr 11, 2014 17:51 UTC

The elaborate gavotte between the American and European economies continues.

While the Federal Reserve has begun to wind down its controversial quantitative easing (QE) program, the European Central Bank (ECB) the federal reserve of the eurozone, has announced it is considering a QE program of its own.

It is a belated acknowledgement, if not an outright admission, from Mario Draghi, president of the ECB, that five years of the European Union’s austerity policy has failed to lift the eurozone nations out of the economic mire. The ECB has presided over a wholly unnecessary triple-dip recession in the eurozone and sparked a bitter rift between the German-dominated European Union bureaucracy and the Mediterranean nations that must endure the rigors imposed from Brussels. All to little avail.

If there are any “austerians” left standing, let them explain this. Ignoring the cries of the unemployed and those pressing for urgent measures to promote growth in Europe, the ECB blithely imposed its punishing creed, arguing that there would be no gain without pain. The result? Little gain, endless pain.

The eurozone economy endured growth at a miserable 0.2 percent year-on-year in the last quarter of 2013 (after an 18-month-long eurozone recession). Unemployment is at a wretched 11.9 percent. The eurozone is suffering from chronic “lowflation,” with inflation at an annual 0.5 percent,  heading toward perhaps the most destructive economic condition of all — deflation.

In response to this dunce’s report card, Draghi is considering pumping money into the eurozone through quantitative easing. Even then, he has made clear he does not mean what he says. He sees this policy — which Washington abandoned when it was seen to be ineffective  – as a last resort to push up inflation and avoid the spiraling collapse of prices and economic activity that threatened the world economy in the fall of 2008. But he hopes the mere threat of QE will be enough to lift prices and save Europe from the deflation that has dogged the Japanese economy for decades.

Austerity is a moral issue

Nicholas Wapshott
May 17, 2013 20:29 UTC

Security worker opens the door of a government job center as people wait to enter in Marbella, Spain, December 2, 2011. REUTERS/Jon Nazca

In the nearly five years since the worst financial crash since the Great Depression, the remedy for the world’s economic doldrums has swung from full-on Keynesianism to unforgiving austerity and back.

The initial Keynesian response halted the collapse in economic activity. But it was soon met by borrowers’ remorse in the shape of paying down debt and raising taxes without delay. In the last year, full-throttle austerity has fallen out of favor with those charged with monitoring the world economy.

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