Economic Theory – Paul Krugman’s Attack On The Euro Isn’t Just About Monetary Policy – It’s About The Rest Of European Unity, Too – And Don’t Think The European Right Doesn’t Know That – 16 May 2013

Paul Krugman is as good of a commentator on austerity economics, and why they don’t work, as you’re going to find. He is not my preferred commentator on European unity, however. This blog article he wrote is an example of why that is.

His article starts off with the question “When can we all admit that the euro is a failure?” It fascinates me that Krugman, who in the 1990s was the regional distributor for globalisation rhetoric, could even have the chutzpah to suggest that the euro has been a failure. Back in the 1990s, we were all talking about the importance of reducing transaction costs in a globalised economy. A unified currency does that. The reason we have the Euro in the first place is that decision-makers in Europe wanted to accept that European countries are part of a larger market that spills out beyond their national borders, and facilitate trade within a unified European economic zone. The logic of that still makes as much sense today as it did when the Euro was introduced at the beginning of the 2000s. Indeed, I suspect Krugman knows a younger version of himself would have understood that. Post-Crisis Krugman, however, is a very different creature than Pre-Crisis Krugman.

I suspect that Krugman has adopted his anti-Europe persona because at heart he’s pretty conservative, all this “Conscience of a Liberal” stuff notwithstanding (indeed, by even using that phrase, he’s harkening back to Barry Goldwater’s book “Conscience of a Conservative”). Though austerity policies rankle him the way they should rankle any economist who has studied working economies for more than a millisecond, other conservative pronouncements seem barely to register with him. People on the Greek Left may admire him for his willingness to take on austerity doctrines, but people on the Greek far Right would find much to admire in his willingness to blame the crisis on the Euro. By declaring the Euro a failure without spending even a moment of time to consider what it has done for Europe, Krugman provides oxygen to those far Right elements.

I’ve mentioned in the past James K. Galbraith’s take on Krugman – which is not all that positive and mostly derive from Krugman’s past ad hominem attacks on Galbraith’s father, John Kenneth Galbraith. Krugman, back when he was Pre-Crisis Krugman, essentially held up the elder Galbraith as an example of everything that was bad about liberal economic views – particularly that category of liberal economic views which would not accept that There Is No Alternative to economic globalisation. It remains ironic that Krugman today has a reputation as a crusading liberal, because in the 1990s he had a reputation as a Third Way-sympathising critic of crusading liberals.

But if you’ve read me before, you’ve more than likely already heard me say that…I’ve devoted a few commentaries to just that point. Here I want to focus more specifically on Krugman’s beliefs about the Euro, and I only bring this into the discussion because we have seen in the past that Krugman likes to associate himself with comfortable Third Way-ish opinions, and certainly anti-Euro opinions fall in that category, when they offer a possible way to moralistically blame countries in the European periphery for the economic crisis they are suffering.

This is what’s really involved here, if we’re honest. Common arguments to the contrary, this is really about finding a way to wag a finger at peripheral European countries for having brought their troubles on themselves without having to support austerity policies to have access to the moralistic policy response. In other words, in this version of events, it’s all the Greeks fault not because they’re debt freaks on a spree with public money, but because they signed on for the European Union, and, well, they really should have known better.

Yes, of course there is limited evidence that a country having a strictly national currency provides a mechanism for addressing an economic crisis by devaluing that currency. We wouldn’t want to overstate the ability of using that monetary policy tool, of course – Zimbabwe devalued its purely national currency a whole whack of times, and that really didn’t help matters there. Now it openly uses other currencies rather than trust its own dollar, the use of which was discontinued in 2009. (One of the several currencies on which it now relies, in addition to the South African rand and the US dollar, is the Euro…but hey, let’s ignore that if it’s convenient.)

But as simplistic responses to a crisis go, anti-Euro is as simplistic as it gets. Even if the countries of the European periphery could, say, negotiate a holiday from the Euro and temporarily re-establish a “new drachma”, “new peseta”, “new punt”, “new lira”, etcetera, in order to enjoy this lovely monetary policy freedom Krugman advocates, if that holiday were made permanent, it would allow the countries of the European centre to claim the institutions of the EU for Angela Merkel, David Cameron and the other European austerity czars. This would establish the principle, better than anything could, that the EU really is about the ugly centralisation that right-wing “Eurosceptics” claim. It wouldn’t just be the Euro that goes – it would be the essence of European unity itself.

The last thing Europe needs is to become the antagonistic cauldron of nationalistic resentment it was before 1945. Krugman should know better than to feed those antagonism. Sadly, he doesn’t. He provides no line separating his views from the views of the right-wing nationalist politicians with which Europe now teems, particularly in the countries most affected by the austerity he decries. How does simply opposing the Euro as a policy position distinguish one from Greece’s Golden Dawn party, or Hungary’s Jobbik party, or the British National Party, or France’s Front national? All those parties would be delighted if the Euro were scrapped tomorrow. I trust Krugman does not share their other views, but I still have to ask – why is he so comfortable with sharing that one?

Another point I’ve made before, which will be familiar to people who have read me in the past, is that something is not really a “union” if it abandons its weaker members in times of crisis. We don’t think twice in Canada about the federal government acting to ensure that each of the provinces are protected. When Newfoundland was comparatively badly off, we didn’t ask them to re-establish the Newfoundland pound, and we’re not asking Ontario to create themselves a currency now. Americans haven’t asked southern states, traditionally economically weaker than the rest of the country, to re-establish Confederate money, nor has anyone asked the Californians, who recently had budgetary issues, to create themselves a currency so that the state could benefit from another monetary tool for invigorating the state’s economy. These are unions, not mere arrangements of convenience.

Europe has to decide whether its “union” is an arrangement of convenience or something real. Krugman seems willing to provide them a way out. He should not be encouraged to do so. Europe has come too far already to accept convenient arguments for breaking it up now.

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