What is most distressing about the current state of the global economy – particularly in developed nations – isn’t the magnitude of the challenges confronting policymakers – though they are redoubtable – but the “sense of resignation” which seems to imbue their discussions.
The Americans, and Mme. Lagarde of the IMF, have to their great credit pushed for a halt to fiscal consolidation in countries which are still able to borrow at enviable rates (i.e. Germany, the UK, and even Canada), and to pursue a pro-growth agenda in order to stabilize the global economy, prevent a “double dip” recession, and avert the economic stagnation which all but ensures that austerity will fail as it induces economic contraction, leading to more austerity, and hence more contraction, until the degree of austerity required to stabilize public finance becomes politically intolerable and serial sovereign defaults ensue. Those defaults would, in turn, precipitate a solvency crisis for many European banks, which is why Mme. Largarde has called for compulsory capital injections.
Alas, the Americans have not prevailed, and Mme. Lagarde has been forced, under pressure from the EU, to retreat from her admirably bold and prudently interventionist position. Thus we are left with the piffle of the communiqué issued by G7 finance ministers: there is to be no coordinated action; no decisive interventions to protect the European banking system or the international financial system; no credible multinational plan to revive and sustain growth as there was in 2009.
Far from a reflection of policymakers’ sense of “resignation”, this is an act of capitulation – capitulation to emotional exhaustion, capitulation to intellectual exhaustion, and, above all, capitulation to political exhaustion. As Professor Eichengreen explains, there are several courses of action – both fiscally and political feasible – which could achieve the short-term stability needed to enact the medium and long-term reforms necessary to preserve the Euro and rebalance the global economy. Might domestic political dysfunction trump the imperatives of public policy? Quite possibly. Might these measures prove to be unequal to the immensity of the looming crisis? Again, that is quite possible. However, surely our leaders owe it to their citizens whose welfare is in acute jeopardy to fight, fight, fight to stave off catastrophe!
On April 12, 1918, as the German army, having broken through the allied lines, advanced towards Paris, towards the sea, and towards victory, Field Marshal Douglas Haig, commander of the British Expeditionary Force (BEF), issued a now famous order: “Every position must be held to the last man; there must be no retirement. With our backs to the wall, and believing in the justice of our cause, each one of us must fight on to the end.” You may say to me that I am being melodramatic, at best, absurdly alarmist, at worst. I say to you that you underestimate the scope of the perils before us. Despite the EU’s protestations to the contrary, their banks are dangerously exposed to dubious sovereign debt; continental growth is far too anemic to support the austerity required to avert default; the American economy is one knife’s edge (and may already be in recession); and so-called emerging markets cannot save us. In economic terms, this is a 1918 moment. Of Haig’s order I would say to you that in its terse, urgent prose are the combative and resolute spirit which must inform every act and every decision of our leaders. There are options. There is hope. We can heal our economies and help our citizens – now!
Calamity is a choice, so too is its rejection. There must be no retirement. There must be no resignation.