Can we repair Europe’s economy?

There is a view of modern Western politics that says that the leaders of countries can no longer make new policy, at least not unless the people suggest it first. Basically, leaders are now boxed in by public opinion. In which case, for Europe’s future we have a problem. Leaders have become followers.

This isn’t just about the UK. Leaving the EU might actually turn out to be an easy gig. Possibly.

But a harder gig might be the Germany – Greece dynamic, and its impact on the euro rather than the EU.

It is no secret that there is a large body of German public opinion, quite right wing, that says the Greek people have been profligate and are now in a deep and long recession because they have let their debt grow too far. And any German leader who suggests forgiving Greek debt will be hounded out of office, or never elected.

Serious economists know that this explanation is about as useful as blaming the recession on feta cheese. There are basically two camps within the EU: net surplus countries like Germany and net deficit countries like Greece. EU countries with their own currency can devalue their way out of trouble. But EU countries in the euro zone have no such room to manoeuvre.

Serious politicians know about this problem too. There are two basic possibilities: leave the euro and devalue your new, independent currency. Or change the euro rule book to recycle funds between countries in the same way the Americans do between their states for the dollar zone.

But serious politicians fear the public backlash in either case, so nothing is done until public opinion changes. Meanwhile a whole country, a people, suffers.

There are historic precedents. The UK political right wing in the 1920s promoted the idea of the Gold Standard – sound money based only on gold bars in bank vaults. Attractive, at least until millions were unemployed and starving, at which points Keynes showed an alternative, that governments needed to take a lead and borrow to reduce unemployment and restart growth.

We need Keynesian measures again now, and this time these measures need to be internationally co-ordinated.

The main question now is, can Europe’s government leaders take a similar lead today? And if not, can we find a way to move public opinion in order to give our leaders the room they need to start moving?

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