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The strange non-death of public spending

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In 2011 (2013 update 7/3/17) Colin Crouch wrote a noted book entitled The strange non-death of neoliberalism. In it he discussed why neoliberalism had managed to avoid being killed by what had appeared to be its nemesis: the global financial and economic crisis. The title came to mind on reading  some recent work on the political economy of modern capitalism in general, and the European Union in particular, by some other well-known commentators. It seems that, actually, we are witness to the strange non-death of public spending, at least in the EU.

Let me first give two examples of a view that many readers will likely believe to be self-evident.

In Le Monde Diplomatique the reknowned historian and political economist Perry Anderson has just published an analysis of the driving forces behind populism and protest. Under the sub-heading “Draconian austerity” he writes:

From monetary union (1990) to the Stability Pact (1997), then the Single Market Act (2011), the powers of national parliaments were voided in a supranational structure of bureaucratic authority shielded from popular will, just as the ultraliberal economist Friedrich Hayek had prophesied. With this machinery in place, draconian austerity could be imposed on helpless electorates, under the joint direction of the Commission and a reunified Germany…

The economic sociologist Wolfgang Streeck has also been much in the news with a series of pessimistic books and shorter publications on a similar theme. Democracy is being weakened and, [Read more…]

Germany’s debt brake is not a model for Europe

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My IMK colleagues Christoph Paetz, Katja Rietzler and Achim Truger have just issued an important analysis of experience with the German Schuldenbremse (debt brake) since 2011. If you read German I heartily recommend you to consult it. We will prepare an English translation, but given the importance of the debt brake for the fiscal policy discussion in Europe (and the fact that quality technical translations take time) let me summarise the main points of interest for European readers here.

The first key mesage is that the apparent successes of the debt brake – the over-fulfilment of fiscal targets, rapid consolidation and emulation by other EU governments under the fiscal compact – are in fact a mirage. The consolidation outcomes, in particular the fact that Germany has posted fiscal surpluses for the past two years, result from the favourable economic and labour market development in Germany, especially the unexpectedly rapid bounce-back from the Great Recession. On top of this came substantial savings in interest payments due to the fall in interest rates, as much of the remaining euro area was mired in recession and the ECB pulled out the monetary stops.

The second, more fundamental point is that the favourable business cycle since the introduction of the debt brake has so far concealed its most insidious danger. [Read more…]