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.

No, austerity did not work

Nicholas Wapshott
Nov 7, 2013 18:09 UTC

There have been a lot of sighs of relief in Europe lately, where countries like Britain and Spain, long in recession, have finally started to grow. Not by much, nor for long. But such is the political imperative to suggest that all the misery of fiscally tight economic policies was worth the pain that there are tentative claims the worst is now over and, ipso facto, austerity worked.

Hold on a minute. Growth is good. Growth is what allows countries to pay down their national debt by increasing economic activity, putting the unemployed to work and making people prosperous enough to pay taxes. But gross domestic product growth alone is not enough to provide adequate sustained prosperity if it does not also lead to significant job growth.

Take Spain, which has just emerged from two years of recession by posting a third quarter growth rate of 0.1 percent. Technically the Spanish slump is over. But a glance at their job figures shows the country has a long way to go before it can genuinely say it has escaped the diminishing effects of austerity — in the form of tight fiscal policies, public spending cuts and labor and entitlement reforms — imposed indirectly by Germany through the European Union.

  •