Elections in France and Greece prove, if proof was needed, that voters punish architects of unpopular policies. Fiscal austerity is about to be given the boot in these two countries and the rest of Europe should follow soon, or will as elections come due.
The Germans are aghast. They cannot understand why other Europeans do not want to work hard and live within their means. These Germans, they are a strange lot. Why would anyone want to work hard and spend sensibly, particularly when you can get away with profligacy?
What will happen next? A few years of uncertainty, the odd crisis, trouble in the streets, Government debt renegotiation, and then finally sense will dawn. Countries will want to shape their economic destiny and the principal instrument for that is your own currency.
When the Euro was born, Milton Friedman observed that the Euro would not survive the first major European economic recession.
Paul Krugman, who is a fierce critic of the ‘recovery through austerity’ strategy, argues in a similar vein in the New York Times.
To quote from his oped “One answer — an answer that makes more sense than almost anyone in Europe is willing to admit — would be to break up Europe’s common currency. Europe wouldn’t be in this fix if Greece still had its drachma, Spain its peseta, Ireland its punt, and so on, because Greece and Spain would have what they now lack: a quick way to restore cost-competitiveness and boost exports, namely devaluation”.
For once, the economists may be right!